Arrow Electronics Reports Fourth-Quarter Non-GAAP Earnings Per Share of $1.22

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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 --


ENGLEWOOD, Colo.--(BUSINESS WIRE)-- Arrow Electronics, Inc. (NYS: 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
December 31,

Year Ended
December 31,

2012 20112012 2011
 
Operating income, as reported$264,168$232,183$804,123$908,843
Restructuring, integration, and other charges11,28514,13547,43737,811
Settlement of legal matters (79,158) - (79,158) 5,875
Operating income, as adjusted$196,295$246,318$772,402$952,529
 
Net income attributable to shareholders, as reported$174,704$174,088$506,332$598,810
Restructuring, integration, and other charges6,32011,22330,73928,054
Settlement of legal matters(48,623)-(48,623)3,609
Gain/(adjustment) on bargain purchase-410-(668)
Loss on prepayment of debt-549-549
Reversal of valuation allowance on deferred tax assets - (28,928) - (28,928)
Net income attributable to shareholders, as adjusted$132,401$157,342$488,448$601,426
 
Net income per basic share, as reported$1.64$1.55$4.64$5.25
Restructuring, integration, and other charges.06.10.28.25
Settlement of legal matters(.46)-(.45).03
Gain/(adjustment) on bargain purchase---(.01)
Loss on prepayment of debt----
Reversal of valuation allowance on deferred tax assets - (.26) - (.25)
Net income per basic share, as adjusted$1.25$1.40$4.47$5.27
 
Net income per diluted share, as reported$1.62$1.53$4.56$5.17
Restructuring, integration, and other charges.06.10.28.24
Settlement of legal matters(.45)-(.44).03
Gain/(adjustment) on bargain purchase---(.01)
Loss on prepayment of debt----
Reversal of valuation allowance on deferred tax assets - (.25) - (.25)
Net income per diluted share, as adjusted$1.22$1.38$4.40$5.19
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 EndedYear Ended
December 31,December 31,
2012 20112012 2011
(unaudited) 
 
Sales$5,402,705$5,440,473$20,405,128$21,390,264
Costs and expenses:
Cost of sales4,695,8614,695,66417,667,84218,441,661
Selling, general, and administrative expenses480,103469,7571,849,5341,892,592
Depreciation and amortization30,44628,734115,350103,482
Restructuring, integration, and other charges11,28514,13547,43737,811
Settlement of legal matters (79,158) - (79,158) 5,875
 5,138,537 5,208,290 19,601,005 20,481,421
Operating income264,168232,183804,123908,843
Equity in earnings of affiliated companies2,3461,9368,1126,736
Interest and other financing expense, net22,23328,443101,876105,971
Other - 1,562 - (193)
Income before income taxes244,281204,114710,359809,801
Provision for income taxes 69,460 29,984 203,642 210,485
Consolidated net income174,821174,130506,717599,316
Noncontrolling interests 117 42 385 506
Net income attributable to shareholders$174,704$174,088$506,332$598,810
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:
Basic106,223112,024109,240114,025
Diluted108,105113,878111,077115,932
 
 

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

Inventories2,052,7201,963,910
Other current assets 328,999 181,677
 
Total current assets 7,715,301 7,024,591
 
Property, plant and equipment, at cost:
Land23,94423,790
Buildings and improvements152,008147,215
Machinery and equipment 1,030,983 934,558
1,206,9351,105,563
Less: Accumulated depreciation and amortization (607,294) (549,334)
Property, plant and equipment, net 599,641 556,229
 
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