Arrow Electronics Reports Fourth-Quarter Non-GAAP Earnings Per Share of $1.22 -- Full-Year 2012 Sales of $20.41 Billion and Non-GAAP EPS of $4.40 -- -- Cash Flow from Operations of $675 Million in 2012 -- Business Wire ENGLEWOOD, Colo. -- February 7, 2013 Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2012 net income of $174.7 million, or $1.62 per share on a diluted basis, compared with net income of $174.1 million, or $1.53 per share on a diluted basis in the fourth quarter of 2011. Excluding certain items in both the fourth quarters of 2012 and 2011 as described in the non-GAAP earnings reconciliation table found below, net income of $132.4 million, or $1.22 per share on a diluted basis, in the fourth quarter of 2012 compared with net income of $157.3 million, or $1.38 per share on a diluted basis, in the fourth quarter of 2011. Fourth-quarter sales of $5.40 billion declined 1 percent from sales of $5.44 billion in the prior year. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 3 percent year over year. “We delivered strong results in the fourth quarter, with non-GAAP earnings per share of $1.22 well ahead of our expectations, and strong cash flow from operations. Our ECS business performed especially well with sales up 11 percent over last year’s fourth quarter,” said Michael J. Long, chairman, president, and chief executive officer. “We had an excellent year, balancing our short-term initiatives and our long-term strategic priorities.” Global components fourth-quarter sales of $3.19 billion decreased 7 percent year over year. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 9 percent year over year. Sales in the Asia-Pacific region increased 7 percent year over year, driven by strong growth in China and the ASEAN region. In the Americas, sales declined 6 percent year over year due to ongoing market weakness amid economic uncertainty. European sales were down 20 percent year over year in local currency, reflecting a weakening in the Euro Zone economies during the quarter and a prospective change in the accounting for revenue related to certain fulfillment contracts. Global enterprise computing solutions (“ECS”) fourth-quarter sales of $2.22 billion increased 11 percent year over year. Pro forma for acquisitions and excluding the impact of foreign currency, sales increased 6 percent year over year. On a global basis, ECS delivered impressive double-digit year-over-year growth in storage, software, and services. In the Americas sales growth was at the midpoint of normal seasonality in the core value-added distribution business. In Europe, sales were at the high end of normal seasonality in local currency with strength across all regions. FULL-YEAR Arrow’s net income for 2012 was $506.3 million, or $4.56 per share on a diluted basis, compared with net income of $598.8 million, or $5.17 per share on a diluted basis in 2011. Excluding certain items in both 2012 and 2011 as described in the non-GAAP earnings reconciliation table found below, net income of $488.4 million, or $4.40 per share on a diluted basis, in 2012 compared with net income of $601.4 million, or $5.19 per share on a diluted basis, in 2011. 2012 sales of $20.41 billion declined 5 percent from sales of $21.39 billion in 2011. Pro forma for acquisitions and excluding the impact of foreign currency, sales also declined 5 percent year over year. “Cash flow is again a great story as we generated $675 million in cash from operations in 2012, again meaningfully exceeding our target for cash conversion,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. “In 2012, we returned over $250 million to shareholders through our stock repurchase program, bringing the total returned to shareholders to more than $800 million over the past 5 years.” GUIDANCE Looking ahead to the first quarter of 2013, there remains economic uncertainty in the United States due to the ongoing fiscal cliff and budget negotiations. Fourth-quarter U.S. GDP numbers showed the first contraction in the U.S. economy in over three years. The Euro Zone’s economy also contracted in the fourth quarter and there are no meaningful signs of improvement for the near term. In light of these negative economic indicators, the company remains cautious in the outlook for business activity in the first quarter and would expect less than normal seasonality in the global components business. With this economic uncertainty as a backdrop, the company is embarking on an incremental productivity enhancement program that will include expense reductions of $40 million on an annual basis. “As we look to the first quarter, we believe that total sales will be between $4.6 billion and $5.0 billion, with global components sales between $3.05 billion and $3.25 billion and global enterprise computing solutions sales between $1.55 billion and $1.75 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 $.80 to $.92 per share. Our guidance assumes an average tax rate in the range of 28 to 29 percent, average diluted shares outstanding are expected to be 108.3 million, and the average Euro to USD 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 470 locations in 55 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 gains and losses that the company believes impact the comparability of its results of operations. These charges, credits, and gains and losses arise out of the company’s efficiency enhancement initiatives, acquisitions, 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 gains 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) (unaudited) Quarter Ended Year Ended December 31, December 31, 2012 2011 2012 2011 Operating income, as $ 264,168 $ 232,183 $ 804,123 $ 908,843 reported Restructuring, integration, and other 11,285 14,135 47,437 37,811 charges Settlement of legal (79,158 ) - (79,158 ) 5,875 matters Operating income, as $ 196,295 $ 246,318 $ 772,402 $ 952,529 adjusted Net income attributable to $ 174,704 $ 174,088 $ 506,332 $ 598,810 shareholders, as reported Restructuring, integration, and other 6,320 11,223 30,739 28,054 charges Settlement of legal (48,623 ) - (48,623 ) 3,609 matters Gain/(adjustment) on - 410 - (668 ) bargain purchase Loss on prepayment of - 549 - 549 debt Reversal of valuation allowance on deferred - (28,928 ) - (28,928 ) tax assets Net income attributable to $ 132,401 $ 157,342 $ 488,448 $ 601,426 shareholders, as adjusted Net income per basic $ 1.64 $ 1.55 $ 4.64 $ 5.25 share, as reported Restructuring, integration, and other .06 .10 .28 .25 charges Settlement of legal (.46 ) - (.45 ) .03 matters Gain/(adjustment) on - - - (.01 ) bargain purchase Loss on prepayment of - - - - debt Reversal of valuation allowance on deferred - (.26 ) - (.25 ) tax assets Net income per basic $ 1.25 $ 1.40 $ 4.47 $ 5.27 share, as adjusted Net income per diluted $ 1.62 $ 1.53 $ 4.56 $ 5.17 share, as reported Restructuring, integration, and other .06 .10 .28 .24 charges Settlement of legal (.45 ) - (.44 ) .03 matters Gain/(adjustment) on - - - (.01 ) bargain purchase Loss on prepayment of - - - - debt Reversal of valuation allowance on deferred - (.25 ) - (.25 ) tax assets Net income per diluted $ 1.22 $ 1.38 $ 4.40 $ 5.19 share, as adjusted 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, 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, 2012. ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands except per share data) Quarter Ended Year Ended December 31, December 31, 2012 2011 2012 2011 (unaudited) Sales $ 5,402,705 $ 5,440,473 $ 20,405,128 $ 21,390,264 Costs and expenses: Cost of sales 4,695,861 4,695,664 17,667,842 18,441,661 Selling, general, and 480,103 469,757 1,849,534 1,892,592 administrative expenses Depreciation and 30,446 28,734 115,350 103,482 amortization Restructuring, integration, 11,285 14,135 47,437 37,811 and other charges Settlement of (79,158 ) - (79,158 ) 5,875 legal matters 5,138,537 5,208,290 19,601,005 20,481,421 Operating 264,168 232,183 804,123 908,843 income Equity in earnings of 2,346 1,936 8,112 6,736 affiliated companies Interest and other financing 22,233 28,443 101,876 105,971 expense, net Other - 1,562 - (193 ) Income before 244,281 204,114 710,359 809,801 income taxes Provision for 69,460 29,984 203,642 210,485 income taxes Consolidated 174,821 174,130 506,717 599,316 net income Noncontrolling 117 42 385 506 interests Net income attributable to $ 174,704 $ 174,088 $ 506,332 $ 598,810 shareholders Net income per share: Basic $ 1.64 $ 1.55 $ 4.64 $ 5.25 Diluted $ 1.62 $ 1.53 $ 4.56 $ 5.17 Average number of shares outstanding: Basic 106,223 112,024 109,240 114,025 Diluted 108,105 113,878 111,077 115,932 ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value) December 31, 2012 2011 ASSETS Current assets: Cash and cash equivalents $ 409,684 $ 396,887 Accounts receivable, net 4,923,898 4,482,117 Inventories 2,052,720 1,963,910 Other current assets 328,999 181,677 Total current assets 7,715,301 7,024,591 Property, plant and equipment, at cost: Land 23,944 23,790 Buildings and improvements 152,008 147,215 Machinery and equipment 1,030,983 934,558 1,206,935 1,105,563 Less: Accumulated depreciation and (607,294 ) (549,334 ) amortization Property, plant and equipment, net 599,641 556,229 Investments in affiliated companies 65,603 60,579 Intangible assets, net 414,033 392,763 Cost in excess of net assets of companies 1,711,703 1,473,333 acquired Other assets 279,406 321,584 Total assets $ 10,785,687 $ 9,829,079 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,769,268 $ 3,264,088 Accrued expenses 776,586 660,996 Short-term borrowings, including current 364,357 33,843 portion of long-term debt Total current liabilities 4,910,211 3,958,927 Long-term debt 1,587,478 1,927,823 Other liabilities 300,636 267,069 Equity: Shareholders' equity: Common stock, par value $1: Authorized – 160,000 shares in 2012 and 2011 Issued – 125,424 and 125,382 shares in 2012 125,424 125,382 and 2011, respectively Capital in excess of par value 1,086,239 1,076,275 Treasury stock (19,423 and 13,568 shares in (652,867 ) (434,959 ) 2012 and 2011, respectively), at cost Retained earnings 3,279,289 2,772,957 Foreign currency translation adjustment 182,632 158,550 Other (37,495 ) (29,393 ) Total shareholders' equity 3,983,222 3,668,812 Noncontrolling interests 4,140 6,448 Total equity 3,987,362 3,675,260 Total liabilities and equity $ 10,785,687 $ 9,829,079 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited) Quarter Ended December 31, 2012 2011 Cash flows from operating activities: Consolidated net income $ 174,821 $ 174,130 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 30,446 28,734 Amortization of stock-based compensation 9,685 8,945 Equity in earnings of affiliated companies (2,346 ) (1,936 ) Deferred income taxes (23,380 ) (10,899 ) Restructuring, integration, and other charges 6,320 11,223 Excess tax benefits from stock-based 54 (435 ) compensation arrangements Other (1,446 ) (554 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (554,201 ) (329,943 ) Inventories 37,140 214,783 Accounts payable 374,959 42,788 Accrued expenses 146,052 (10,755 ) Other assets and liabilities (10,354 ) 20,423 Net cash provided by operating activities 187,750 146,504 Cash flows from investing activities: Cash consideration paid for acquired businesses (90,668 ) (9,238 ) Acquisition of property, plant and equipment (36,650 ) (25,674 ) Net cash used for investing activities (127,318 ) (34,912 ) Cash flows from financing activities: Change in short-term and other borrowings (17,607 ) 1,984 Proceeds from (repayment of) long-term bank 19,600 (243,000 ) borrowings, net Repurchase of senior notes - (19,324 ) Proceeds from exercise of stock options 1,891 47 Excess tax benefits from stock-based (54 ) 435 compensation arrangements Repurchases of common stock (38,075 ) (242 ) Net cash used for financing activities (34,245 ) (260,100 ) Effect of exchange rate changes on cash 24,947 829 Net increase (decrease) in cash and cash 51,134 (147,679 ) equivalents Cash and cash equivalents at beginning of period 358,550 544,566 Cash and cash equivalents at end of period $ 409,684 $ 396,887 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2012 2011 Cash flows from operating activities: Consolidated net income $ 506,717 $ 599,316 Adjustments to reconcile consolidated net income to net cash provided by operations: Depreciation and amortization 115,350 103,482 Amortization of stock-based compensation 34,546 39,225 Equity in earnings of affiliated companies (8,112 ) (6,736 ) Deferred income taxes (5,414 ) (11,377 ) Restructuring, integration, and other charges 30,739 28,054 Excess tax benefits from stock-based (5,029 ) (7,956 ) compensation arrangements Other (5,786 ) 4,309 Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable (318,689 ) (193,492 ) Inventories (62,383 ) 105,150 Accounts payable 406,874 (465,603 ) Accrued expenses 38,858 (74,236 ) Other assets and liabilities (52,638 ) 747 Net cash provided by operating activities 675,033 120,883 Cash flows from investing activities: Cash consideration paid for acquired businesses (281,918 ) (532,568 ) Acquisition of property, plant and equipment (112,224 ) (113,941 ) Purchase of cost method investment (15,000 ) - Net cash used for investing activities (409,142 ) (646,509 ) Cash flows from financing activities: Change in short-term and other borrowings (9,812 ) (6,172 ) Proceeds from (repayment of) long-term bank (5,400 ) 354,000 borrowings, net Repayment of bank term loan - (200,000 ) Repurchase of senior notes - (19,324 ) Proceeds from exercise of stock options 13,372 46,665 Excess tax benefits from stock-based 5,029 7,956 compensation arrangements Repurchases of common stock (260,870 ) (197,044 ) Net cash used for financing activities (257,681 ) (13,919 ) Effect of exchange rate changes on cash 4,587 10,111 Net increase (decrease) in cash and cash 12,797 (529,434 ) equivalents Cash and cash equivalents at beginning of year 396,887 926,321 Cash and cash equivalents at end of year $ 409,684 $ 396,887 ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) Quarter Ended Year Ended December 31, December 31, 2012 2011 2012 2011 (unaudited) Sales: Global $ 3,185,764 $ 3,443,034 $ 13,361,122 $ 14,853,823 components Global ECS 2,216,941 1,997,439 7,044,006 6,536,441 Consolidated $ 5,402,705 $ 5,440,473 $ 20,405,128 $ 21,390,264 Operating income (loss): Global $ 122,989 $ 176,680 $ 619,282 $ 823,774 components Global ECS 114,249 106,413 290,970 262,893 Corporate 26,930 (50,910 ) (106,129 ) (177,824 ) (a) Consolidated $ 264,168 $ 232,183 $ 804,123 $ 908,843 Includes restructuring, integration, and other charges of $11.3 million and $47.4 million for the quarter and year ended December 31, 2012 and $14.1 million and $37.8 million for the quarter and year ended December (a) 31, 2011, respectively. Also includes a gain of $79.2 million for the quarter and year ended December 31, 2012 and a charge of $5.9 million for the year ended December 31, 2011, both of which are related to the settlement of legal matters. Contact: Arrow Electronics, Inc. Greer Aviv, 303-824-3765 Senior Manager, Investor Relations or Paul J. Reilly, 631-847-1872 Executive Vice President, Finance and Operations & Chief Financial Officer or John Hourigan, 303-824-4586 (Media) Director, Corporate Communications
Arrow Electronics Reports Fourth-Quarter Non-GAAP Earnings Per Share of $1.22
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