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Arrow Electronics Reports Third Quarter Earnings

Generates in Excess of $200 Million in Cash Flow from Operations

MELVILLE, N.Y.--(BUSINESS WIRE)--

Arrow Electronics, Inc. (NYSE:ARW) today reported third quarter 2008 net income of $76.1 million ($.64 and $.63 per share on a basic and diluted basis, respectively) on sales of $4.30 billion, compared with net income of $98.3 million ($.80 and $.79 per share on a basic and diluted basis, respectively) on sales of $4.03 billion in the third quarter of 2007. Sales increased 7 percent year over year. Pro forma to include the impact of the acquisition of LOGIX S.A. ("LOGIX"), sales increased 4 percent year over year. The company's results for the third quarters of 2008 and 2007 include a number of items outlined below 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 September 30, 2008, would have been $83.7 million ($.70 per share on both a basic and diluted basis) and net income for the quarter ended September 30, 2007, would have been $95.0 million ($.77 and $.76 per share on a basic and diluted basis, respectively).

"The volatility in the world's economies and the virtual shutdown of the credit markets made the third quarter especially difficult. We delivered on our sales guidance and generated over $200 million in cash flow from operations, an increase of $30 million year over year, but fell short of our EPS guidance due to a changing product mix and competitive pricing pressure," said William E. Mitchell, chairman and chief executive officer. "There is no doubt that market conditions will continue to be challenging, and in response to the rapidly changing environment, we will make the appropriate and necessary decisions and adjustments to our business model to ensure continuing and profitable success and long-term sustainability. We continue to believe our strategic foundation is correct, and we have the financial strength and flexibility to continue to pursue those strategies. At the same time, prudent management requires that we stay closely attuned to rapidly changing and volatile market conditions, and we will do so."

Global enterprise computing solutions ("ECS") sales of $1.31 billion increased 12 percent year over year. Pro forma to include the impact of the acquisition of LOGIX, sales increased 2 percent year over year. "ECS sales were in line with our guidance range, as double-digit year-over-year growth in storage, software and services was offset by weakness in servers. In North America, operating income margin increased nearly 9 percent year over year. As has been widely reported, the increasing uncertainty in the global macroeconomic environment has caused IT spending to soften and as a result, our customer base became more cautious in the latter part of the third quarter," added Michael J. Long, president and chief operating officer.

Global components sales of $2.99 billion increased 5 percent year over year. "In our global components business, while sales were in line with expectations, operating performance was impacted by a slowdown in the more profitable business in North America and Europe and the increased contribution of business from Asia Pacific. Overall, the market continues to be cautious, with the macroeconomic situation causing our customers and suppliers to carefully evaluate their business needs," Mr. Long said.

The company's results for the third quarter of 2008 and 2007 include the items outlined below that impact their comparability:

  • During the third quarter of 2008, the company recorded a restructuring and integration charge of $11.0 million ($7.6 million net of related taxes or $.06 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies.


  • During the third quarter of 2007, the company recorded a restructuring and integration charge of $4.5 million ($2.7 million net of related taxes or $.02 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies and the acquisition of KeyLink.


  • During the third quarter of 2007, the company recorded an income tax benefit of $6.0 million, net, ($.05 per share on both a basic and diluted basis) principally due to a reduction in deferred income taxes as a result of the reduction in the statutory tax rate in Germany.

NINE-MONTH RESULTS

Arrow's net income for the first nine months of 2008 was $258.2 million ($2.13 and $2.11 per share on a basic and diluted basis, respectively) on sales of $12.67 billion, compared with net income of $293.8 million ($2.38 and $2.36 per share on a basic and diluted basis, respectively) on sales of $11.57 billion in the first nine months of 2007. Sales in the first nine months of 2008 increased 10 percent year over year. Pro forma to include the impact of the acquisitions of LOGIX and KeyLink Systems Group, sales increased 5 percent year over year.

Net income for the first nine months of 2008 includes a restructuring and integration charge of $25.7 million ($17.7 million net of related taxes or $.15 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies and a charge, including legal fees, related to a preference claim from 2001 of $12.9 million ($7.8 million net of related taxes or $.06 per share on both a basic and diluted basis). Excluding these items, net income would have been $283.7 million ($2.34 and $2.32 per share on a basic and diluted basis, respectively) for the first nine months of 2008.

Net income for the first nine months of 2007 includes restructuring and integration charges of $1.8 million ($0.4 million net of related taxes), primarily related to initiatives taken by the company in the period to improve operating efficiencies and the acquisition of KeyLink, and an income tax benefit of $6.0 million, net, ($.05 per share on both a basic and diluted basis) principally due to a decrease in deferred income taxes as a result of a reduction in the statutory tax rate in Germany. Excluding these items, net income would have been $288.2 million ($2.34 and $2.31 per share on a basic and diluted basis, respectively) for the first nine months of 2007.

GUIDANCE

"Given the poor economic conditions and unprecedented volatility in the financial markets, our visibility is more limited than normal. Taking this into account, we believe it is prudent to provide a wider than normal guidance range to account for the greater degree of uncertainty. Looking ahead, we believe total fourth quarter sales will be between $4.05 and $4.45 billion, with global component sales between $2.45 and $2.75 billion and global enterprise computing solutions sales between $1.60 and $1.70 billion. We expect earnings per share, on a diluted basis, excluding any charges, to be in the range of $.60 to $.68," said Paul J. Reilly, senior vice president and chief financial officer.

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. Headquartered in Melville, N.Y., Arrow serves as a supply channel partner for approximately 700 suppliers and 140,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 300 locations in 50 countries and territories.

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 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 and 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)

                                Three Months Ended  Nine Months Ended
                                  September 30,       September 30,
                                ------------------  -----------------
                                  2008      2007      2008     2007
                                --------- --------  -------- --------

Operating income, as reported   $ 131,776 $157,509  $440,877 $493,322
  Restructuring and integration
   charges                         11,037    4,512    25,711    1,790
  Preference claim from 2001            -        -    12,941        -
                                --------- --------  -------- --------
Operating income, as adjusted   $ 142,813 $162,021  $479,529 $495,112
                                ========= ========  ======== ========

Net income, as reported         $  76,070 $ 98,324  $258,156 $293,829
  Restructuring and integration
   charges Restructuring
   charges                          7,635    2,674    17,723      438
  Preference claim from 2001            -        -     7,822        -
  Deferred tax adjustment*              -   (6,024)        -   (6,024)
                                --------- --------  -------- --------
Net income, as adjusted         $  83,705 $ 94,974  $283,701 $288,243
                                ========= ========  ======== ========

Net income per basic share, as
 reported                       $     .64 $    .80  $   2.13 $   2.38
  Restructuring and integration
   charges Restructuring
   charges                            .06      .02       .15        -
  Preference claim from 2001            -        -       .06        -
  Deferred tax adjustment*              -     (.05)        -     (.05)
                                --------- --------  -------- --------
Net income per basic share, as
 adjusted                       $     .70 $    .77  $   2.34 $   2.34
                                ========= ========  ======== ========

Net income per diluted share,
 as reported                    $     .63 $    .79  $   2.11 $   2.36
  Restructuring and integration
   charges                            .06      .02       .15        -
  Preference claim from 2001            -        -       .06        -
  Deferred tax adjustment*              -     (.05)        -     (.05)
                                --------- --------  -------- --------
Net income per diluted share,
 as adjusted                    $     .70 $    .76  $   2.32 $   2.31
                                ========= ========  ======== ========

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.

*During the third quarter and first nine months of 2007, the company recorded an income tax benefit of $6.0 million, net ($.05 per share on both a basic and diluted basis) principally due to a reduction in deferred income taxes as a result of the statutory tax rate change in Germany. These deferred income taxes primarily related to the amortization of intangible assets for income tax purposes, which are not amortized for accounting purposes.

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)

                          Three Months Ended      Nine Months Ended
                             September 30,          September 30,
                         --------------------- -----------------------
                            2008       2007       2008        2007
                         ---------- ---------- ----------- -----------

Sales                    $4,295,314 $4,030,363 $12,671,282 $11,566,010
                         ---------- ---------- ----------- -----------
Costs and expenses:
  Cost of products sold   3,731,459  3,477,806  10,908,665   9,894,852
  Selling, general and
   administrative
   expenses                 403,542    373,796   1,230,893   1,127,958
  Depreciation and
   amortization              17,500     16,740      52,195      48,088
  Restructuring and
   integration charge        11,037      4,512      25,711       1,790
  Preference claim from
   2001                           -          -      12,941           -
                         ---------- ---------- ----------- -----------
                          4,163,538  3,872,854  12,230,405  11,072,688
                         ---------- ---------- ----------- -----------
Operating income            131,776    157,509     440,877     493,322
Equity in earnings of
 affiliated companies         2,073      2,172       5,359       5,842
Interest expense, net        24,809     24,273      74,010      75,376
                         ---------- ---------- ----------- -----------
Income before income
 taxes and minority
 interest                   109,040    135,408     372,226     423,788
Provision for income
 taxes                       32,863     36,554     113,801     127,593
                         ---------- ---------- ----------- -----------
Income before minority
 interest                    76,177     98,854     258,425     296,195
Minority interest               107        530         269       2,366
                         ---------- ---------- ----------- -----------
Net income               $   76,070 $   98,324 $   258,156 $   293,829
                         ========== ========== =========== ===========
Net income per share:
  Basic                  $      .64 $      .80 $      2.13 $      2.38
                         ========== ========== =========== ===========
  Diluted                $      .63 $      .79 $      2.11 $      2.36
                         ========== ========== =========== ===========
Average number of shares
 outstanding:
  Basic                     119,541    123,161     121,226     123,321
  Diluted                   120,384    124,292     122,118     124,598
   This interim report is subject to independent audit at year-end.
                       ARROW ELECTRONICS, INC.
                     CONSOLIDATED BALANCE SHEETS
                   (In thousands except par value)

                                          September 30,  December 31,
                                              2008           2007
                                          -------------  ------------
 ASSETS
Current assets:
  Cash and cash equivalents               $     243,437  $    447,731
  Accounts receivable, net                    3,091,544     3,281,169
  Inventories                                 1,777,844     1,679,866
  Prepaid expenses and other assets             191,192       180,629
                                          -------------  ------------
    Total current assets                      5,304,017     5,589,395
                                          -------------  ------------
Property, plant and equipment, at cost:
  Land                                           41,033        41,553
  Buildings and improvements                    177,442       175,979
  Machinery and equipment                       673,037       580,278
                                          -------------  ------------
                                                891,512       797,810
  Less: Accumulated depreciation and
   amortization                                (470,905)     (442,649)
                                          -------------  ------------
      Property, plant and equipment, net        420,607       355,161
                                          -------------  ------------
Investments in affiliated companies              48,561        47,794
Cost in excess of net assets of companies
 acquired                                     1,964,104     1,779,235
Other assets                                    354,785       288,275
                                          -------------  ------------
    Total assets                          $   8,092,074  $  8,059,860
                                          =============  ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                        $   2,357,591  $  2,535,583
  Accrued expenses                              524,088       438,898
  Short-term borrowings, including
   current portion of
long-term debt                                   40,008        12,893
                                          -------------  ------------
    Total current liabilities                 2,921,687     2,987,374
                                          -------------  ------------

Long-term debt                                1,218,719     1,223,337
Other liabilities                               259,326       297,289
Shareholders' equity:
  Common stock, par value $1:
    Authorized - 160,000 shares in 2008
     and 2007
    Issued - 125,048 and 125,039 shares
     in 2008 and 2007, respectively             125,048       125,039
  Capital in excess of par value              1,031,390     1,025,611
  Retained earnings                           2,442,900     2,184,744
  Foreign currency translation adjustment       304,947       312,755
  Other                                         (21,330)       (8,720)
                                          -------------  ------------
                                              3,882,955     3,639,429
  Less: Treasury stock (5,750 and 2,212
   shares in 2008 and
2007, respectively), at cost                   (190,613)      (87,569)
                                          -------------  ------------
    Total shareholders' equity                3,692,342     3,551,860
                                          -------------  ------------
    Total liabilities and shareholders'
     equity                               $   8,092,074  $  8,059,860
                                          =============  ============
   This interim report is subject to independent audit at year-end.
                       ARROW ELECTRONICS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                 Three Months Ended
                                                   September 30,
                                               ----------------------
                                                  2008        2007
                                               -----------  ---------
Cash flows from operating activities:
  Net income                                   $    76,070  $  98,324
 Adjustments to reconcile net income to net
  cash provided by operations:
    Depreciation and amortization                   17,500     16,740
    Amortization of stock-based compensation         3,343      5,440
    Amortization of deferred financing costs
     and discount on notes                             474        531
    Equity in earnings of affiliated companies      (2,073)    (2,172)
    Minority interest                                  107        530
    Deferred income taxes                           14,007     (2,533)
    Restructuring and integration charge             7,635      2,674
    Excess tax benefits from stock-based
     compensation arrangements                           3       (622)
    Change in assets and liabilities, net of
     effects of acquired businesses:
      Accounts receivable                          177,072     16,728
      Inventories                                   87,631    (17,055)
      Prepaid expenses and other assets              7,225    (14,140)
      Accounts payable                            (156,186)    56,036
      Accrued expenses                              (7,667)    19,159
      Other                                        (22,914)    (8,248)
                                               -----------  ---------
  Net cash provided by operating activities        202,227    171,392
                                               -----------  ---------
Cash flows from investing activities:
  Acquisition of property, plant and equipment     (43,148)   (41,527)
  Cash consideration paid for acquired
   businesses                                      (46,751)   (43,248)
  Other                                               (172)       (40)
                                               -----------  ---------
  Net cash used for investing activities           (90,071)   (84,815)
                                               -----------  ---------
Cash flows from financing activities:
  Change in short-term borrowings                  (18,796)   (15,299)
  Repayment of long-term borrowings             (1,564,300)  (887,434)
  Proceeds from long-term borrowings             1,444,972    887,400
  Proceeds from exercise of stock options            1,537      4,691
  Excess tax benefits from stock-based
   compensation arrangements                            (3)       622
  Repurchases of common stock                      (13,102)   (42,925)
                                               -----------  ---------
  Net cash used for financing activities          (149,692)   (52,945)
                                               -----------  ---------
Effect of exchange rate changes on cash             (3,510)     4,978
                                               -----------  ---------
Net (decrease)/increase in cash and cash
 equivalents                                       (41,046)    38,610
Cash and cash equivalents at beginning of
 period                                            284,483    278,997
                                               -----------  ---------
Cash and cash equivalents at end of period     $   243,437  $ 317,607
                                               ===========  =========
   This interim report is subject to independent audit at year-end.
                       ARROW ELECTRONICS, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands)

                                                Nine Months Ended
                                                  September 30,
                                             ------------------------
                                                2008         2007
                                             -----------  -----------
Cash flows from operating activities:
  Net income                                 $   258,156  $   293,829
 Adjustments to reconcile net income to net
  cash provided by operations:
    Depreciation and amortization                 52,195       48,088
    Amortization of stock-based compensation      13,017       17,212
    Amortization of deferred financing costs
     and discount on notes                         1,616        1,609
    Equity in earnings of affiliated
     companies                                    (5,359)      (5,842)
    Minority interest                                269        2,366
    Deferred income taxes                         11,251         (465)
    Restructuring and integration charge          17,723          438
    Preference claim from 2001                     7,822            -
    Excess tax benefits from stock-based
     compensation arrangements                      (228)      (7,315)
    Change in assets and liabilities, net of
     effects of acquired businesses:
      Accounts receivable                        332,617     (114,763)
      Inventories                                (40,092)     159,609
      Prepaid expenses and other assets           (6,976)     (12,379)
      Accounts payable                          (313,281)     200,615
      Accrued expenses                            51,560       51,065
      Other                                      (36,255)      (3,805)
                                             -----------  -----------
  Net cash provided by operating activities      344,035      630,262
                                             -----------  -----------
Cash flows from investing activities:
  Acquisition of property, plant and
   equipment                                    (112,519)    (102,894)
  Cash consideration paid for acquired
   businesses                                   (319,865)    (539,315)
  Proceeds from sale of facilities                     -       12,996
  Other                                             (380)         178
                                             -----------  -----------
  Net cash used for investing activities        (432,764)    (629,035)
                                             -----------  -----------
Cash flows from financing activities:
  Change in short-term borrowings                (10,512)     (40,663)
  Repayment of long-term borrowings           (2,988,950)  (1,791,351)
  Proceeds from long-term borrowings           2,988,649    1,989,900
  Repayment of senior notes                            -     (169,136)
  Proceeds from exercise of stock options          4,371       51,118
  Excess tax benefits from stock-based
   compensation arrangements                         228        7,315
  Repurchases of common stock                   (115,763)     (75,684)
                                             -----------  -----------
  Net cash used for financing activities        (121,977)     (28,501)
                                             -----------  -----------
Effect of exchange rate changes on cash            6,412        7,151
                                             -----------  -----------
Net decrease in cash and cash equivalents       (204,294)     (20,123)
Cash and cash equivalents at beginning of
 period                                          447,731      337,730
                                             -----------  -----------
Cash and cash equivalents at end of period   $   243,437  $   317,607
                                             ===========  ===========
   This interim report is subject to independent audit at year-end.
                       ARROW ELECTRONICS, INC.
                         SEGMENT INFORMATION
                            (In thousands)

                       Three Months Ended       Nine Months Ended
                         September 30,            September 30,
                     ----------------------  ------------------------
                        2008        2007        2008         2007
                     ----------  ----------  -----------  -----------

Sales:
  Global components  $2,988,950  $2,859,264  $ 8,869,394  $ 8,413,191
  Global ECS          1,306,364   1,171,099    3,801,888    3,152,819
                     ----------  ----------  -----------  -----------
   Consolidated      $4,295,314  $4,030,363  $12,671,282  $11,566,010
                     ==========  ==========  ===========  ===========

Operating income
 (loss):
  Global components  $  138,389  $  151,663  $   446,020  $   458,388
  Global ECS             39,653      38,338      131,437      118,347
  Corporate (a)         (46,266)    (32,492)    (136,580)     (83,413)
                     ----------  ----------  -----------  -----------
   Consolidated      $  131,776  $  157,509  $   440,877  $   493,322
                     ==========  ==========  ===========  ===========
(a) Includes restructuring and integration charges of $11.0 million
     and $25.7 million for the third quarter and first nine months of
     2008, respectively, and restructuring and integration charges of
     $4.5 million and $1.8 million for the third quarter and first
     nine months of 2007, respectively. Also includes a charge of
     $12.9 million related to the preference claim from 2001 for the
     first nine months of 2008.
   This interim report is subject to independent audit at year-end.

Source: Arrow Electronics, Inc.

Contact:
Arrow Electronics, Inc.
Michael Taunton, 631-847-5680
Vice President & Treasurer
or
Paul J. Reilly, 631-847-1872
Senior Vice President & Chief Financial Officer
or
Media:
John Hourigan, 303-824-4586
Director, External Communications

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