Arrow Electronics Reports First-Quarter Results -- Non-GAAP earnings per share of $.89 –- -- Global ECS posts 13^th consecutive quarter of year-over-year organic growth -- Business Wire ENGLEWOOD, Colo. -- May 01, 2013 Arrow Electronics, Inc. (NYSE:ARW) today reported first-quarter 2013 net income of $77.9 million, or $.72 per share on a diluted basis, compared with net income of $113.6 million, or $1.00 per share on a diluted basis in the first quarter of 2012. Excluding certain items in both the first quarters of 2013 and 2012 as described in the non-GAAP earnings reconciliation table found below, net income would have been $96.0 million, or $.89 per share on a diluted basis, in the first quarter of 2013 compared with net income of $119.8 million, or $1.05 per share on a diluted basis, in the first quarter of 2012. First-quarter sales of $4.85 billion declined 1 percent from sales of $4.89 billion in the prior year. “We performed well in the first quarter. Sales of $4.8 billion were in line with our expectations and earnings per share of $.89 were above the midpoint of our guidance. Our ECS business continues to deliver excellent performance, reaching record-level first-quarter sales, while posting the 13^th consecutive quarter of organic growth,” said Michael J. Long, chairman, president, and chief executive officer. “As we look to the second quarter, we would expect the world’s economies to be consistent with what we experienced in the first quarter, and therefore we would expect to see normal seasonality across our businesses.” Global components first-quarter sales of $3.19 billion decreased 5 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, declined 2 percent year over year. In the Americas, sales declined 5 percent year over year as market conditions weakened and customers maintained a cautious stance. European sales were down 16 percent year over year, due to a prospective change in the accounting for revenue related to a certain fulfillment contract, and to a lesser extent, a worsening of the economic conditions in the region over the past nine months. Sales in Europe, as adjusted in the non-GAAP sales reconciliation table below, declined 6 percent. Sales in the Asia-Pacific region increased 11 percent year over year, driven by strength in the core business. Global enterprise computing solutions (“ECS”) first-quarter sales of $1.66 billion increased 8 percent year over year. Sales, as adjusted in the non-GAAP sales reconciliation table below, increased 2 percent year over year. Storage, software, and services grew at a healthy rate year over year as customers focus on productivity and efficiency enhancements for their organizations. In the Americas, sales growth was above normal seasonality in the core value-added distribution business with a stronger-than-expected close to the quarter. In Europe, as expected, sales were modestly below normal seasonality, as the European economies further weakened in the first quarter. GUIDANCE “In February we committed to delivering $40 million in annual expense reductions during 2013. With a more thorough review of our processes and productivity enhancement opportunities, in part driven by new systems, we will be able to exceed that commitment and reduce expenses by more than $75 million on an annual basis, all while selectively investing in the long-term future of the company,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. In the second quarter the company believes that total sales will be between $4.9 billion and $5.3 billion, with global components sales between $3.15 billion and $3.35 billion and global enterprise computing solutions sales between $1.75 billion and $1.95 billion. As a result of this outlook, earnings per share, on a diluted basis, excluding any charges should be in the range of $.95 to $1.07 per share. The company’s guidance assumes an average tax rate in the range of 27 to 29 percent, average diluted shares outstanding of 107.1 million, and an average Euro to USD exchange rate for the second quarter of 1.30 to 1. 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 470 locations in 55 countries. 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 operating income, net income attributable to shareholders and net income per basic and diluted share, each as 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, and prepayment of debt. The company also provides sales on a non-GAAP basis adjusted for the impact of foreign currency and certain other items that impact the year over year comparison. These other items include a prospective revision of sales related to a certain fulfillment contract to present these revenues on an agency basis as net fees, as compared to presenting gross sales and costs of sales (referred to as “change in presentation of sales”) 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"). 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 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) EARNINGS RECONCILIATION Quarter Ended March 30, March 31, 2013 2012 Operating income, as reported $ 137,552 $ 187,449 Restructuring, integration, and 21,610 8,243 other charges Operating income, as adjusted $ 159,162 $ 195,692 Net income attributable to $ 77,875 $ 113,628 shareholders, as reported Restructuring, integration, and 15,495 6,141 other charges Loss on prepayment of debt 2,627 - Net income attributable to $ 95,997 $ 119,769 shareholders, as adjusted Net income per basic share, as $ .74 $ 1.01 reported Restructuring, integration, and .15 .05 other charges Loss on prepayment of debt .02 - Net income per basic share, as $ .91 $ 1.07 adjusted Net income per diluted share, as $ .72 $ 1.00 reported Restructuring, integration, and .14 .05 other charges Loss on prepayment of debt .02 - Net income per diluted share, as $ .89 $ 1.05 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. SALES RECONCILIATION Quarter Ended March 30, March 31, % Change 2013 2012 Consolidated sales, as reported $ 4,849,629 $ 4,889,529 (1 )% Impact of foreign currency - 9,142 Impact of acquisitions 3,219 127,454 Change in presentation of sales - (131,488 ) Consolidated sales, as adjusted $ 4,852,848 $ 4,894,637 (1 )% Global components sales, as reported $ 3,192,580 $ 3,349,554 (5 )% Impact of foreign currency - 11,135 Impact of acquisitions 3,219 33,830 Change in presentation of sales - (131,488 ) Global components sales, as adjusted $ 3,195,799 $ 3,263,031 (2 )% Global ECS sales, as reported $ 1,657,049 $ 1,539,975 8 % Impact of foreign currency - (1,993 ) Impact of acquisitions - 93,624 Global ECS sales, as adjusted $ 1,657,049 $ 1,631,606 2 % Europe components sales, as reported $ 886,636 $ 1,056,631 (16 )% Impact of foreign currency - 13,456 Change in presentation of sales - (131,488 ) Europe components sales, as adjusted $ 886,636 $ 938,599 (6 )% 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) (Unaudited) Quarter Ended March 30, March 31, 2013 2012 Sales $ 4,849,629 $ 4,889,529 Costs and expenses: Cost of sales 4,207,557 4,208,950 Selling, general, and administrative expenses 451,405 455,837 Depreciation and amortization 31,505 29,050 Restructuring, integration, and other charges 21,610 8,243 4,712,077 4,702,080 Operating income 137,552 187,449 Equity in earnings of affiliated companies 1,983 2,184 Loss on prepayment of debt 4,277 - Interest and other financing expense, net 29,530 27,132 Income before income taxes 105,728 162,501 Provision for income taxes 27,770 48,778 Consolidated net income 77,958 113,723 Noncontrolling interests 83 95 Net income attributable to shareholders $ 77,875 $ 113,628 Net income per share: Basic $ .74 $ 1.01 Diluted $ .72 $ 1.00 Average number of shares outstanding: Basic 105,889 112,002 Diluted 107,824 114,077 ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value) March 30, December 31, 2013 2012 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 364,151 $ 409,684 Accounts receivable, net 4,493,418 4,923,898 Inventories 2,066,516 2,052,720 Other current assets 381,398 328,999 Total current assets 7,305,483 7,715,301 Property, plant, and equipment, at cost: Land 23,871 23,944 Buildings and improvements 151,576 152,008 Machinery and equipment 1,050,207 1,030,983 1,225,654 1,206,935 Less: Accumulated depreciation and (624,115 ) (607,294 ) amortization Property, plant, and equipment, net 601,539 599,641 Investments in affiliated companies 66,547 65,603 Intangible assets, net 403,972 414,033 Cost in excess of net assets of companies 1,704,241 1,711,703 acquired Other assets 278,347 279,406 Total assets $ 10,360,129 $ 10,785,687 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 3,282,020 $ 3,769,268 Accrued expenses 608,362 776,586 Short-term borrowings, including current 36,957 364,357 portion of long-term debt Total current liabilities 3,927,339 4,910,211 Long-term debt 2,204,806 1,587,478 Other liabilities 319,310 300,636 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 1,046,374 1,086,239 Treasury stock (20,378 and 19,423 shares in (704,043 ) (652,867 ) 2013 and 2012, respectively), at cost Retained earnings 3,357,164 3,279,289 Foreign currency translation adjustment 116,462 182,632 Other (36,930 ) (37,495 ) Total shareholders' equity 3,904,451 3,983,222 Noncontrolling interests 4,223 4,140 Total equity 3,908,674 3,987,362 Total liabilities and equity $ 10,360,129 $ 10,785,687 ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Quarter Ended March 30, March 31, 2013 2012 Cash flows from operating activities: Consolidated net income $ 77,958 $ 113,723 Adjustments to reconcile consolidated net income to net cash provided by (used for) operations: Depreciation and amortization 31,505 29,050 Amortization of stock-based compensation 5,983 7,255 Equity in earnings of affiliated companies (1,983 ) (2,184 ) Deferred income taxes 19,584 18,961 Restructuring, integration, and other charges 15,495 6,141 Excess tax benefits from stock-based (6,475 ) (4,947 ) compensation arrangements Loss on prepayment of debt 2,627 - Other (1,031 ) (1,457 ) Change in assets and liabilities, net of effects of acquired businesses: Accounts receivable 388,980 334,014 Inventories (25,377 ) (24,357 ) Accounts payable (467,797 ) (135,198 ) Accrued expenses (173,437 ) (64,564 ) Other assets and liabilities (45,436 ) (26,102 ) Net cash provided by (used for) operating (179,404 ) 250,335 activities Cash flows from investing activities: Cash consideration paid for acquired businesses (9,382 ) (160,543 ) Acquisition of property, plant, and equipment (26,751 ) (22,253 ) Other (3,000 ) - Net cash used for investing activities (39,133 ) (182,796 ) Cash flows from financing activities: Change in short-term and other borrowings (14,342 ) (9,074 ) Proceeds from long-term bank borrowings, net 44,300 329,700 Net proceeds from note offering 591,156 - Redemption of senior notes (338,184 ) - Proceeds from exercise of stock options 10,600 10,138 Excess tax benefits from stock-based 6,475 4,947 compensation arrangements Repurchases of common stock (113,504 ) (57,684 ) Net cash provided by financing activities 186,501 278,027 Effect of exchange rate changes on cash (13,497 ) (2,745 ) Net increase (decrease) in cash and cash (45,533 ) 342,821 equivalents Cash and cash equivalents at beginning of period 409,684 396,887 Cash and cash equivalents at end of period $ 364,151 $ 739,708 ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (unaudited) Quarter Ended March 30, March 31, 2013 2012 Sales: Global components $ 3,192,580 $ 3,349,554 Global ECS 1,657,049 1,539,975 Consolidated $ 4,849,629 $ 4,889,529 Operating income (loss): Global components $ 128,280 $ 170,708 Global ECS 61,591 55,487 Corporate (a) (52,319 ) (38,746 ) Consolidated $ 137,552 $ 187,449 (a) Includes restructuring, integration, and other charges of $21.6 million and $8.2 million for the first quarters of 2013 and 2012, respectively. Contact: Arrow Electronics, Inc. Contacts: 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 Media Contact: John Hourigan, 303-824-4586 Vice President, Global Communications
Arrow Electronics Reports First-Quarter Results
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