News Column

Arrow Electronics Fourth Quarter Sales Advance 14% Year over Year to $6.2 Billion

February 5, 2014

-- Fourth Quarter Non-GAAP Diluted Earnings per Share Advance 31% to Record $1.69 -- -- Cash Flow from Operations of $215 Million in the Fourth Quarter -- ENGLEWOOD, Colo. --(BUSINESS WIRE)-- Arrow Electronics Inc. (NYSE:ARW) today reported fourth quarter 2013 net income of $134.8 million , or $1.32 per share on a diluted basis, compared with net income of $174.7 million , or $1.62 per share on a diluted basis in the fourth quarter of 2012. Excluding certain items in both the fourth quarters of 2013 and 2012 1 , net income of $172.0 million , or $1.69 per share on a diluted basis, in the fourth quarter of 2013 compared with net income of $139.7 million , or $1.29 per share on a diluted basis, in the fourth quarter of 2012. Fourth quarter sales of $6.15 billion increased 14 percent from sales of $5.40 billion in the prior year. Sales, as adjusted, increased 8 percent year over year. “An outstanding fourth quarter capped off a good year for Arrow. Both sales and non-GAAP earnings per share were ahead of our expectations, and we, again, generated strong cash flow. Operating margins grew in both businesses year over year, and we posted record operating income in the fourth quarter,” said Michael J. Long , chairman, president, and chief executive officer. Global components fourth-quarter sales of $3.44 billion increased 8 percent year over year. Sales, as adjusted, increased 6 percent year over year. Sales in the Asia-Pacific region increased 9 percent year over year, with significant contributions from China . In the Americas , sales increased 3 percent year over year. European sales, as adjusted, were up 10 percent year over year. Global enterprise computing solutions (“ECS”) fourth-quarter sales of $2.72 billion increased 23 percent year over year. Sales, as adjusted, increased 12 percent year over year, as storage, software, and services advanced at double digit growth rates globally. In the Americas , sales grew 19 percent year over year as our value-added service offering creates a differentiated value proposition for our suppliers and customers. In Europe sales, as adjusted, advanced 5 percent year over year. FULL YEAR Arrow’s net income for 2013 was $399.4 million , or $3.85 per share on a diluted basis, compared with net income of $506.3 million , or $4.56 per share on a diluted basis in 2012. Excluding certain items in both 2013 and 2012 1 , net income of $519.0 million , or $5.01 per share on a diluted basis, in 2013 compared with net income of $517.8 million , or $4.66 per share on a diluted basis, in 2012. 2013 sales of $21.36 billion increased 5 percent from sales of $20.41 billion in 2012. Sales, as adjusted, increased 3 percent year over year. “We were able to drive current year results, with operating income, as adjusted, up $14 million year over year to $823 million . We also invested in our future, funding organic growth programs and completing acquisitions to accelerate our strategy, as well as return significant capital to our shareholders, said Mr. Long .” 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. “With $451 million in cash flow from operations in 2013, 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 do both strategic acquisitions and return approximately $350 million to shareholders through our stock repurchase program in 2013.” GUIDANCE We expect no meaningful change to the markets we serve in the first quarter of 2014. “As we look to the first quarter, we believe that total sales will be between $5.1 billion and $5.5 billion , with global components sales between $3.3 billion and $3.5 billion and global enterprise computing solutions sales between $1.8 billion and $2.0 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 $1.14 to $1.26 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 102 million, and the average USD to Euro exchange rate for the first quarter is 1.35 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 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 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, 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 certain other items that impact the year over year comparison. These other items include a prospective revision of sales related to a fulfillment contract to present these revenues on an agency basis as net fees, as compared to presenting gross sales (referred to as “change in presentation of sales” which had no impact on profitability or cash flow) 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), 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. ARROW ELECTRONICS, INC. NON-GAAP SALES RECONCILIATION (In thousands) (Unaudited) Quarter Ended December 31 , 2013 2012 % Change Consolidated sales, as reported $ 6,153,360 $ 5,402,705 13.9% Impact of changes in foreign currencies - 57,805 Impact of acquisitions 98,427 304,582 Consolidated sales, as adjusted $ 6,251,787 $ 5,765,092 8.4% Global components sales, as reported $ 3,437,211 $ 3,185,764 7.9% Impact of changes in foreign currencies - 28,189 Impact of acquisitions 25,856 60,037 Global components sales, as adjusted $ 3,463,067 $ 3,273,990 5.8% Europe components sales, as reported $ 886,840 $ 772,205 14.8% Impact of changes in foreign currencies - 32,492 Impact of acquisitions 5,534 7,608 Europe components sales, as adjusted $ 892,374 $ 812,305 9.9% Global ECS sales, as reported $ 2,716,149 $ 2,216,941 22.5% Impact of changes in foreign currencies - 29,616 Impact of acquisitions 72,571 244,545 Global ECS sales, as adjusted $ 2,788,720 $ 2,491,102 11.9% ECS Europe sales, as reported $ 1,047,283 $ 813,867 28.7% Impact of changes in foreign currencies - 38,681 Impact of acquisitions 61,685 207,863 ECS Europe sales, as adjusted $ 1,108,968 $ 1,060,411 4.6% Year Ended December 31 , 2013 2012 % Change Consolidated sales, as reported $ 21,357,285 $ 20,405,128 4.7% Impact of changes in foreign currencies - 161,069 Impact of acquisitions 834,158 1,255,433 Change in presentation of sales - (280,626 ) Consolidated sales, as adjusted $ 22,191,443 $ 21,541,004 3.0% Global components sales, as reported $ 13,495,766 $ 13,361,122 1.0% Impact of changes in foreign currencies - 97,775 Impact of acquisitions 169,445 301,040 Change in presentation of sales - (280,626 ) Global components sales, as adjusted $ 13,665,211 $ 13,479,311 1.4% Europe components sales, as reported $ 3,590,311 $ 3,661,249 (1.9)% Impact of changes in foreign currencies - 110,039 Impact of acquisitions 29,772 30,431 Change in presentation of sales - (280,626 ) Europe components sales, as adjusted $ 3,620,083 $ 3,521,093 2.8% Global ECS sales, as reported $ 7,861,519 $ 7,044,006 11.6% Impact of changes in foreign currencies - 63,294 Impact of acquisitions 664,713 954,393 Global ECS sales, as adjusted $ 8,526,232 $ 8,061,693 5.8% ECS Europe sales, as reported $ 2,631,258 $ 2,265,982 16.1% Impact of changes in foreign currencies - 78,701 Impact of acquisitions 564,853 836,085 ECS Europe sales, as adjusted $ 3,196,111 $ 3,180,768 0.5% ARROW ELECTRONICS, INC. NON-GAAP EARNINGS RECONCILIATION (In thousands except per share data) (Unaudited) Quarter Ended Year Ended December 31 , December 31 , 2013 2012 2013 2012 Operating income, as reported $ 237,337 $ 264,168 $ 693,500 $ 804,123 Intangible assets amortization expense 10,007 9,136 36,769 36,508 Restructuring, integration, and other charges 18,248 11,285 92,650 47,437 Settlement of legal matter - (79,158 ) - (79,158 ) Operating income, as adjusted $ 265,592 $ 205,431 $ 822,919 $ 808,910 Net income attributable to shareholders, as reported $ 134,831 $ 174,704 $ 399,420 $ 506,332 Intangible assets amortization expense 8,120 7,255 29,339 29,336 Restructuring, integration, and other charges 13,341 6,320 65,601 30,739 Settlement of legal matter - (48,623 ) - (48,623 ) Loss on prepayment of debt - - 2,627 - Settlement of tax matters Income taxes 15,447 - 20,809 - Interest (net of taxes) 297 - 1,236 - Net income attributable to shareholders, as adjusted $ 172,036 $ 139,656 $ 519,032 $ 517,784 Net income per basic share, as reported $ 1.34 $ 1.64 $ 3.89 $ 4.64 Intangible assets amortization expense .08 .07 .29 .27 Restructuring, integration, and other charges .13 .06 .64 .28 Settlement of legal matter - (.46 ) - (.45 ) Loss on prepayment of debt - - .03 - Settlement of tax matters Income taxes .15 - .20 - Interest (net of taxes) - - .01 - Net income per basic share, as adjusted $ 1.71 $ 1.31 $ 5.06 $ 4.74 Net income per diluted share, as reported $ 1.32 $ 1.62 $ 3.85 $ 4.56 Intangible assets amortization expense .08 .07 .28 .26 Restructuring, integration, and other charges .13 .06 .63 .28 Settlement of legal matter - (.45 ) - (.44 ) Loss on prepayment of debt - - .03 - Settlement of tax matters Income taxes .15 - .20 - Interest (net of taxes) - - .01 - Net income per diluted share, as adjusted $ 1.69 $ 1.29 $ 5.01 $ 4.66 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. NON-GAAP SEGMENT RECONCILIATION (In thousands) (Unaudited) Quarter Ended Year Ended December 31 , December 31 , 2013 2012 2013 2012 Global components operating income, as reported $ 143,078 $ 122,989 $ 575,612 $ 619,282 Intangible assets amortization expense 5,090 5,225 20,038 18,787 Global components operating income, as adjusted $ 148,168 $ 128,214 $ 595,650 $ 638,069 Global ECS operating income, as reported $ 148,372 $ 114,249 $ 350,442 $ 290,970 Intangible assets amortization expense 4,917 3,911 16,731 17,721 Global ECS operating income, as adjusted $ 153,289 $ 118,160 $ 367,173 $ 308,691 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) Quarter Ended Year Ended December 31 , December 31 , 2013 2012 2013 2012 (Unaudited) Sales $ 6,153,360 $ 5,402,705 $ 21,357,285 $ 20,405,128 Costs and expenses: Cost of sales 5,365,735 4,695,861 18,566,356 17,667,842 Selling, general, and administrative expenses 497,439 480,103 1,873,638 1,849,534 Depreciation and amortization 34,601 30,446 131,141 115,350 Restructuring, integration, and other charges 18,248 11,285 92,650 47,437 Settlement of legal matter - (79,158 ) - (79,158 ) 5,916,023 5,138,537 20,663,785 19,601,005 Operating income 237,337 264,168 693,500 804,123 Equity in earnings of affiliated companies 2,202 2,346 7,429 8,112 Interest and other financing expense, net 27,537 22,233 114,433 101,876 Other - - 4,277 - Income before income taxes 212,002 244,281 582,219 710,359 Provision for income taxes 77,083 69,460 182,343 203,642 Consolidated net income 134,919 174,821 399,876 506,717 Noncontrolling interests 88 117 456 385 Net income attributable to shareholders $ 134,831 $ 174,704 $ 399,420 $ 506,332 Net income per share: Basic $ 1.34 $ 1.64 $ 3.89 $ 4.64 Diluted $ 1.32 $ 1.62 $ 3.85 $ 4.56 Weighted-average shares outstanding: Basic 100,513 106,223 102,559 109,240 Diluted 101,850 108,105 103,699 111,077 ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value) December 31 , 2013 2012 ASSETS Current assets: Cash and cash equivalents $ 390,602 $ 409,684 Accounts receivable, net 5,769,759 4,923,898 Inventories 2,167,287 2,052,720 Other current assets 258,122 328,999 Total current assets 8,585,770 7,715,301 Property, plant, and equipment, at cost: Land 24,051 23,944 Buildings and improvements 142,583 152,008 Machinery and equipment 1,113,987 1,030,983 1,280,621 1,206,935 Less: Accumulated depreciation and amortization (648,232 ) (607,294 ) Property, plant, and equipment, net 632,389 599,641 Investments in affiliated companies 67,229 65,603 Intangible assets, net 426,069 414,033 Cost in excess of net assets of companies acquired 2,039,293 1,711,703 Other assets 310,133 279,406 Total assets $ 12,060,883 $ 10,785,687 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 4,503,200 $ 3,769,268 Accrued expenses 774,868 776,586 Short-term borrowings, including current portion of long-term debt 23,878 364,357 Total current liabilities 5,301,946 4,910,211 Long-term debt 2,226,132 1,587,478 Other liabilities 347,977 300,636 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in both 2013 and 2012 Issued – 125,424 shares in both 2013 and 2012 125,424 125,424 Capital in excess of par value 1,071,075 1,086,239 Treasury stock (25,488 and 19,423 shares in 2013 and 2012, respectively), at cost (920,528 ) (652,867 ) Retained earnings 3,678,709 3,279,289 Accumulated other comprehensive income 225,552 145,137 Total shareholders' equity 4,180,232 3,983,222 Noncontrolling interests 4,596 4,140 Total equity 4,184,828 3,987,362 Total liabilities and equity $ 12,060,883 $ 10,785,687 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Quarter Ended December 31 , 2013 2012 Cash flows from operating activities: Consolidated net income $ 134,919 $ 174,821 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 34,601 30,446 Amortization of stock-based compensation 12,676 9,685 Equity in earnings of affiliated companies (2,202 ) (2,346 ) Deferred income taxes (15,038 ) (23,380 ) Restructuring, integration, and other charges 13,341 6,320 Excess tax benefits from stock-based compensation arrangements (235 ) 54 Other 725 (1,446 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (959,428 ) (554,201 ) Inventories 72,903 37,140 Accounts payable 808,163 374,959 Accrued expenses 80,044 146,052 Other assets and liabilities 34,577 (10,354 ) Net cash provided by operating activities 215,046 187,750 Cash flows from investing activities: Cash consideration paid for acquired businesses (324,548 ) (90,668 ) Acquisition of property, plant, and equipment (30,697 ) (36,650 ) Net cash used for investing activities (355,245 ) (127,318 ) Cash flows from financing activities: Change in short-term and other borrowings (9,058 ) (17,607 ) Proceeds from long-term bank borrowings, net 314,300 19,600 Proceeds from exercise of stock options 5,646 1,891 Excess tax benefits from stock-based compensation arrangements 235 (54 ) Repurchases of common stock (50,180 ) (38,075 ) Net cash provided by (used for) financing activities 260,943 (34,245 ) Effect of exchange rate changes on cash 18,068 24,947 Net increase in cash and cash equivalents 138,812 51,134 Cash and cash equivalents at beginning of period 251,790 358,550 Cash and cash equivalents at end of period $ 390,602 $ 409,684 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31 , 2013 2012 Cash flows from operating activities: Consolidated net income $ 399,876 $ 506,717 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 131,141 115,350 Amortization of stock-based compensation 36,923 34,546 Equity in earnings of affiliated companies (7,429 ) (8,112 ) Deferred income taxes 273 (5,414 ) Restructuring, integration, and other charges 65,601 30,739 Excess tax benefits from stock-based compensation arrangements (7,172 ) (5,029 ) Other 3,534 (5,786 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (572,886 ) (318,689 ) Inventories (21,277 ) (62,383 ) Accounts payable 446,814 406,874 Accrued expenses (123,969 ) 38,858 Other assets and liabilities 99,262 (52,638 ) Net cash provided by operating activities 450,691 675,033 Cash flows from investing activities: Cash consideration paid for acquired businesses (367,940 ) (281,918 ) Acquisition of property, plant, and equipment (116,162 ) (112,224 ) Purchase of cost method investments (3,000 ) (15,000 ) Net cash used for investing activities (487,102 ) (409,142 ) Cash flows from financing activities: Change in short-term and other borrowings (31,340 ) (9,812 ) Proceeds from (repayment of) long-term bank borrowings, net 71,400 (5,400 ) Net proceeds from note offering 591,156 - Redemption of senior notes (338,184 ) - Proceeds from exercise of stock options 36,014 13,372 Excess tax benefits from stock-based compensation arrangements 7,172 5,029 Repurchases of common stock (362,793 ) (260,870 ) Net cash used for financing activities (26,575 ) (257,681 ) Effect of exchange rate changes on cash 43,904 4,587 Net increase (decrease) in cash and cash equivalents (19,082 ) 12,797 Cash and cash equivalents at beginning of year 409,684 396,887 Cash and cash equivalents at end of year $ 390,602 $ 409,684 ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) Quarter Ended Year Ended December 31 , December 31 , 2013 2012 2013 2012 (Unaudited) Sales: Global components $ 3,437,211 $ 3,185,764 $ 13,495,766 $ 13,361,122 Global ECS 2,716,149 2,216,941 7,861,519 7,044,006 Consolidated $ 6,153,360 $ 5,402,705 $ 21,357,285 $ 20,405,128 Operating income (loss): Global components $ 143,078 $ 122,989 $ 575,612 $ 619,282 Global ECS 148,372 114,249 350,442 290,970 Corporate (a) (54,113 ) 26,930 (232,554 ) (106,129 ) Consolidated $ 237,337 $ 264,168 $ 693,500 $ 804,123 (a) Includes restructuring, integration, and other charges of $18.2 million and $92.7 million for the quarter and year ended December 31, 2013 and $11.3 million and $47.4 million for the quarter and year ended December 31, 2012 , respectively. Also included is a gain of $79.2 million for the quarter and year ended December 31, 2012 which is related to the settlement of a legal matter. Arrow Electronics Inc. Greg Hanson Vice President and Treasurer 303-824-4537 or Paul J. Reilly Executive Vice President, Finance and Operations & Chief Financial Officer 631-847-1872 or Media: John Hourigan Vice President, Global Communications 303-824-4586 Source: Arrow Electronics Inc.


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