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

-- 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)--Feb. 5, 2014-- 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 20121, 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 20121, 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.

Source: Arrow Electronics Inc.

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

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