ARROW ELECTRONICS INC - FORM 8-K - EX-99.1 - EXHIBIT 99.1 - May 6, 2014

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Exhibit 99.1
 
 
ARROW ELECTRONICS REPORTS FIRST-QUARTER NON-GAAP EARNINGS PER SHARE OF $1.22
 
-- Margins Expand Over Prior Year --
-- Cash Flow from Operations of $124 Million --

 
ENGLEWOOD, Colo. –- May 6, 2014 -- Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2014 net income of $107.1 million, or $1.06 per share on a diluted basis, compared with net income of $77.9 million, or $.72 per share on a diluted basis in the first quarter of 2013.  Excluding certain items1 in both the first quarters of 2014 and 2013, net income of $124.0 million, or $1.22 per share on a diluted basis, in the first quarter of 2014 compared with net income of $103.1 million, or $.96 per share on a diluted basis, in the first quarter of 2013.  First quarter sales of $5.08 billion increased 5 percent from sales of $4.85 billion in the prior year.  Sales, as adjusted, decreased 1 percent year over year.

“We continued to execute on our strategic initiatives in the first quarter.  Earnings per share of $1.22 were above the midpoint of our guidance, while sales of $5.1 billion were slightly below our expectations.  Global components delivered good growth.  Business conditions for enterprise computing solutions were mixed; however, demand improved in April.  We were pleased with the profitability performance across our businesses that resulted in 28 percent earnings-per-share growth,” said Michael J. Long, chairman, president, and chief executive officer.

Global components first-quarter sales of $3.42 billion increased 7 percent year over year.  Sales, as adjusted, grew 4 percent year over year.  Americas sales increased 1 percent year over year.  European sales grew 12 percent year over year.  Sales in Europe, as adjusted, grew 7 percent, the fourth consecutive quarter of year-over-year growth for the region on an as-adjusted basis.  Sales in the Asia-Pacific region increased 12 percent year over year, with strength in the core business.

Global enterprise computing solutions first-quarter sales of $1.66 billion were flat year over year.  Sales, as adjusted, decreased 11 percent year over year, as storage and servers experienced lower demand globally.  Trends in the Americas and Europe were consistent, characterized by growth in our software and security product lines.

“With $124 million in cash flow from operations in the first quarter, we again meaningfully exceeded our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer.  “The highly effective management of our balance sheet and related strong cash flow provided us with the opportunity to both deploy capital toward our strategic initiatives and return approximately $75 million to shareholders through our stock repurchase program.”

GUIDANCE

“As we look to the second quarter, we would expect market conditions for our global components business to remain consistent with the first quarter.  We expect some recovery in the markets served by our enterprise computing solutions business.  We believe that total sales will be between $5.45 billion and $5.85 billion, with global components sales between $3.45 billion and $3.65 billion and global enterprise computing solutions sales between $2 billion and $2.2 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 $1.35 to $1.47 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 101 million, and the average USD to Euro exchange rate for the second quarter is 1.38 to 1,” said Mr. Reilly.
 
 
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.
 
 
 
 
 
 
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 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 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), and prepayment of debt.  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.
 (In thousands except per share data)
(Unaudited)

 
NON-GAAP SALES RECONCILIATION
 
    Quarter Ended        
   
March 29, 2014
 
  
March 30, 2013
    
% Change
  
Consolidated sales, as reported
  
$
5,082,040
    
$
4,849,629
    
4.8
 %
Impact of changes in foreign currencies
    
-
      
44,999
        
Impact of acquisitions
    
-
      
258,365
        
Consolidated sales, as adjusted
  
$
5,082,040
    
$
5,152,993
    
(1.4
 )% 
                       
Global components sales, as reported
  
$
3,421,181
    
$
3,192,580
    
7.2
 %
Impact of changes in foreign currencies
    
-
      
28,808
        
Impact of acquisitions
    
-
      
56,575
        
Global components sales, as adjusted
  
$
3,421,181
    
$
3,277,963
    
4.4
  %
 
                      
Europe components sales, as reported
  
$
988,933
    
$
886,636
    
11.5
  %
Impact of changes in foreign currencies
    
-
      
32,396
        
Impact of acquisitions
    
-
      
8,596
        
Europe components sales, as adjusted
  
$
988,933
    
$
927,628
    
6.6
  %
 
                      
Global ECS sales, as reported
  
$
1,660,859
    
$
1,657,049
    
0.2
 %
Impact of changes in foreign currencies
    
-
      
16,191
        
Impact of acquisitions
    
-
      
201,790
        
Global ECS sales, as adjusted
  
$
1,660,859
    
$
1,875,030
    
(11.4
 )% 
                       

 
NON-GAAP EARNINGS RECONCILIATION
   
Quarter Ended
  
   
March 29, 2014
    
March 30, 2013
  
                 
Operating income, as reported
  
$
177,740
    
$
137,552
  
Intangible assets amortization expense
    
10,947
      
8,957
  
Restructuring, integration, and other charges
    
11,614
      
21,610
  
Operating income, as adjusted
  
$
200,301
    
$
168,119
  
                 
Net income attributable to shareholders, as reported
  
$
107,120
    
$
77,875
  
Intangible assets amortization expense
    
8,907
      
7,116
  
Restructuring, integration, and other charges
    
8,020
      
15,495
  
   Loss on prepayment of debt
    
-
      
2,627
  
Net income attributable to shareholders, as adjusted
  
$
124,047
    
$
103,113
  
 
                
Net income per basic share, as reported
  
$
1.07
    
$
.74
  
Intangible assets amortization expense
    
.09
      
.07
  
Restructuring, integration, and other charges
    
.08
      
.15
  
   Loss on prepayment of debt
    
-
      
.02
  
Net income per basic share, as adjusted
  
$
1.24
    
$
.97
  
                 
Net income per diluted share, as reported
  
$
1.06
    
$
.72
  
Intangible assets amortization expense
    
.09
      
.07
  
Restructuring, integration, and other charges
    
.08
      
.14
  
   Loss on prepayment of debt
    
-
      
.02
  
Net income per diluted share, as adjusted
  
$
1.22
    
$
.96
  
 
 
 
 
 
 
 

 
ARROW ELECTRONICS, INC.
 (In thousands except per share data)
(Unaudited)


SEGMENT INFORMATION
   
   
Quarter Ended
  
   
March 29, 2014
    
March 30, 2013
  
                 
  Sales:
                
  Global components
  
$
3,421,181
    
$
3,192,580
  
  Global ECS
    
1,660,859
      
1,657,049
  
           Consolidated
  
$
5,082,040
    
$
4,849,629
  
                 
  Operating income (loss):
                
  Global components
  
$
161,146
    
$
128,280
  
  Global ECS
    
64,158
      
61,591
  
     Corporate (a)
    
(47,564
)
 
  
(52,319
)
             Consolidated
  
$
177,740
    
$
137,552
  

(a)
Includes restructuring, integration, and other charges of $11.6 million and $21.6 million for the first quarters of 2014 and 2013, respectively.

 
 
 
NON-GAAP SEGMENT RECONCILIATION
 
 
 
Quarter Ended
  
 
  March 29, 2014
  
March 30, 2013
  
             
Global components operating income, as reported
$
161,146
  
$
128,280
  
Intangible assets amortization expense
  
5,548
    
5,015
  
Global components operating income, as adjusted
$
166,694
  
$
133,295
  
             
Global ECS operating income, as reported
$
64,158
  
$
61,591
  
Intangible assets amortization expense
  
5,399
    
3,942
  
Global ECS operating income, as adjusted
$
69,557
  
$
65,533
  
 
 

 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)


    Quarter Ended  
   
March 29, 2014
    
March 30, 2013
  
             
 Sales
   $ 5,082,040     $ 4,849,629  
 Costs and expenses:
                
 Cost of sales
     4,378,212       4,207,557  
 Selling, general, and administrative expenses
     477,903       451,405  
 Depreciation and amortization
     36,571       31,505  
    Restructuring, integration, and other charges
     11,614       21,610  
      4,904,300       4,712,077  
 Operating income
     177,740       137,552  
 Equity in earnings of affiliated companies
     1,417       1,983  
 Loss on prepayment of debt
     -       4,277  
 Interest and other financing expense, net
     29,637       29,530  
 Income before income taxes
     149,520       105,728  
 Provision for income taxes
     42,328       27,770  
 Consolidated net income
     107,192       77,958  
 Noncontrolling interests
     72       83  
 Net income attributable to shareholders
   $ 107,120     $ 77,875  
 Net income per share:
                
  Basic
   $ 1.07     $ .74  
  Diluted
   $ 1.06     $ .72  
 Weighted-average shares outstanding:
                
  Basic
     99,948       105,889  
  Diluted
     101,399       107,824  
 
 
 
 
 
 
 
 
 
 
 

 

ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)


   
March 29, 2014
    
December 31, 2013
  
   
(Unaudited)
        
  ASSETS
            
  Current assets:
            
  Cash and cash equivalents
   $ 258,283     $ 390,602  
  Accounts receivable, net
     4,846,349       5,769,759  
  Inventories
     2,094,439       2,167,287  
  Other current assets
     287,691       258,122  
                 
              Total current assets
     7,486,762       8,585,770  
  Property, plant, and equipment, at cost:
                
  Land
     24,042       24,051  
  Buildings and improvements
     144,344       142,583  
  Machinery and equipment
     1,137,995       1,113,987  
      1,306,381       1,280,621  
  Less: Accumulated depreciation and amortization
     (664,860 )     (648,232 )
   Property, plant, and equipment, net
     641,521       632,389  
  Investments in affiliated companies
     68,364       67,229  
  Intangible assets, net
     430,475       426,069  
  Cost in excess of net assets of companies acquired
     2,083,892       2,039,293  
  Other assets
     321,902       310,133  
                 
        Total assets
   $ 11,032,916     $ 12,060,883  
LIABILITIES AND EQUITY
                
Current liabilities:
                
  Accounts payable
   $ 3,627,458     $ 4,503,200  
  Accrued expenses
     653,049       774,868  
     Short-term borrowings, including current portion of long-term debt
     16,452       23,878  
                 
       Total current liabilities
     4,296,959       5,301,946  
                 
Long-term debt
     2,142,987       2,226,132  
Other liabilities
     367,064       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
     1,056,326       1,071,075  
           Treasury stock (25,820 and 25,488 shares in 2014 and
     2013, respectively), at cost
     (962,635 )     (920,528 )
           Retained earnings
     3,785,829       3,678,709  
           Accumulated other comprehensive income
     216,293       225,552  
              Total shareholders' equity
     4,221,237       4,180,232  
                 
Noncontrolling interests
     4,669       4,596  
              Total equity
     4,225,906       4,184,828  
              Total liabilities and equity
   $ 11,032,916     $ 12,060,883  
                 
 
 
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


   
Quarter Ended
  
   
March 29, 2014
    
March 30, 2013
  
Cash flows from operating activities:
            
Consolidated net income
   $ 107,192     $ 77,958  
   Adjustments to reconcile consolidated net income to net cash
            provided by (used for) operations:
                
Depreciation and amortization
     36,571       31,505  
Amortization of stock-based compensation
     9,796       5,983  
Equity in earnings of affiliated companies
     (1,417 )     (1,983 )
Deferred income taxes
     10,641       19,584  
Restructuring, integration, and other charges
     8,020       15,495  
   Excess tax benefits from stock-based compensation arrangements
     (5,862 )     (6,475 )
   Other
     1,492       1,596  
   Change in assets and liabilities, net of effects of acquired
                 businesses:
                
      Accounts receivable
     904,719       388,980  
 Inventories
     72,001       (25,377 )
 Accounts payable
     (859,288 )     (467,797 )
 Accrued expenses
     (127,226 )     (173,437 )
 Other assets and liabilities
     (32,602 )     (45,436 )
Net cash provided by (used for) operating activities
     124,037       (179,404 )
                 
Cash flows from investing activities:
                
    Cash consideration paid for acquired businesses
     (60,224 )     (9,382 )
Acquisition of property, plant, and equipment
     (32,843 )     (26,751 )
Other
     -       (3,000 )
Net cash used for investing activities
     (93,067 )     (39,133 )
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
     (7,338 )     (14,342 )
Proceeds from (repayment of) long-term bank borrowings, net
     (85,000 )     44,300  
Net proceeds from note offering
     -       591,156  
Redemption of senior notes
     -       (338,184 )
Proceeds from exercise of stock options
     16,142       10,600  
Excess tax benefits from stock-based compensation arrangements
     5,862       6,475  
Repurchases of common stock
     (88,501 )     (113,504 )
Net cash provided by (used for) financing activities
     (158,835 )     186,501  
                 
Effect of exchange rate changes on cash
     (4,454 )     (13,497 )
Net decrease in cash and cash equivalents
     (132,319 )     (45,533 )
Cash and cash equivalents at beginning of period
     390,602       409,684  
Cash and cash equivalents at end of period
   $ 258,283     $ 364,151  

 
 
CONTACT:
Arrow Electronics, Inc.
Steven O’Brien
Director, Investor Relations
303-824-4544
or
Paul J. Reilly
Executive Vice President, Finance and Operations, & Chief Financial Officer
631-847-1872
or
Media Contact:
John Hourigan
Vice President, Global Communications
303-824-4586

ARROW ELECTRONICS INC Reports