Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2014 net income of $116.2 million, or $1.18 per share on a diluted basis, compared with net income of $134.8 million, or $1.32 per share on a diluted basis, in the fourth quarter of 2013. Excluding certain items 1 in the fourth quarters of 2014 and 2013, net income would have been $184.4 million, or $1.88 per share on a diluted basis, in the fourth quarter of 2014, compared with net income of $172.0 million, or $1.69 per share on a diluted basis, in the fourth quarter of 2013. Fourth-quarter sales of $6.40 billion increased 4 percent from sales of $6.15 billion in the prior year.

"In the fourth quarter we produced record results, completing an outstanding year. Earnings per share of $1.88 were above our expectations, with sales of $6.4 billion above the midpoint of our guidance. Our global components and enterprise computing solutions segments both delivered sales and operating income growth. The stable demand environment for global components matched our expectations. Our focus on the higher value portion of the datacenter resulted in record operating income for our enterprise computing solutions business," said Michael J. Long, chairman, president, and chief executive officer.

Global components fourth-quarter sales of $3.59 billion increased 4 percent year over year. Sales, as adjusted, grew 5 percent year over year. Americas components sales increased 4 percent year over year. Europe components sales grew 1 percent year over year and the region grew 8 percent year over year on an as-adjusted basis. Components sales in the Asia-Pacific region increased 8 percent year over year.

Global enterprise computing solutions fourth-quarter sales of $2.81 billion grew 3 percent year over year. Americas sales grew 9 percent year over year. Europe sales declined 6 percent year over year and the region declined 3 percent year over year on an as-adjusted basis. Both Americas and Europe continued to experience strong growth in software and services.

FULL-YEAR RESULTS

Arrow's net income for 2014 was $498.0 million, or $4.98 per share on a diluted basis, compared with net income of $399.4 million, or $3.85 per share on a diluted basis, in 2013. Excluding certain items 1 in 2014 and 2013, net income would have been $593.0 million, or $5.93 per share on a diluted basis, in 2014, compared with net income of $519.0 million, or $5.01 per share on a diluted basis, in 2013. 2014 sales of $22.77 billion increased 7 percent from sales of $21.36 billion in 2013. Sales, as adjusted, increased 3 percent year over year.

"We delivered strong leverage on our sales in 2014, with operating income, as adjusted, up 12 percent year over year to $924 million, and diluted earnings per share up 19 percent year over year to $5.93," said Mr. Long.

"Cash flow from operations was $673 million in 2014 as we again exceeded our cash flow target with returns advancing over the prior year," said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer. "The strong management of our balance sheet and cash flow provided the opportunity for Arrow to return approximately $290 million to shareholders through our stock repurchase program and to continue to make strategic acquisitions in 2014."

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.

GUIDANCE

"As we look to the first quarter, we believe that total sales will be between $4.9 billion and $5.3 billion, with global components sales between $3.35 billion and $3.55 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 $1.27 to $1.39 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 98 million, and the average USD to Euro exchange rate for the first quarter to be 1.14 to 1. The weaker Euro will have a negative impact of $285 million or 5 percent on sales and a negative impact of $.08 or 6 percent on earnings per share on a diluted basis, when compared with the first quarter of 2014. The weaker Euro will have a negative impact of $175 million or 3 percent on sales and a negative impact of $.06 or 4 percent on earnings per share on a diluted basis when compared with the fourth quarter of 2014," said Mr. Reilly.

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 460 locations in 56 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 enterprise computing solutions 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, 2014.

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 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 earliest 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), trade name impairment charge, sale of investment, 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.

(In thousands except per share data)

(Unaudited)

 

NON-GAAP SALES RECONCILIATION
 
Quarter Ended

December 31,
2014 2013 % Change
 
Consolidated sales, as reported $ 6,396,879 $ 6,153,360 4.0 %
Impact of changes in foreign currencies - (184,052 )
Impact of acquisitions   -   171,757
Consolidated sales, as adjusted $ 6,396,879 $ 6,141,065 4.2 %
 
Global components sales, as reported $ 3,591,212 $ 3,437,211 4.5 %
Impact of changes in foreign currencies - (76,376 )
Impact of acquisitions   -   66,549
Global components sales, as adjusted $ 3,591,212 $ 3,427,384 4.8 %
 
Europe components sales, as reported $ 896,334 $ 886,840 1.1 %
Impact of changes in foreign currencies - (68,967 )
Impact of acquisitions   -   10,124
Europe components sales, as adjusted $ 896,334 $ 827,997 8.3 %
 
Global ECS sales, as reported $ 2,805,667 $ 2,716,149 3.3 %
Impact of changes in foreign currencies - (107,676 )
Impact of acquisitions   -   105,208
Global ECS sales, as adjusted $ 2,805,667 $ 2,713,681 3.4 %
 
Europe ECS sales, as reported $ 983,620 $ 1,047,283 (6.1 )%
Impact of changes in foreign currencies - (92,682 )
Impact of acquisitions   -   55,648
Europe ECS sales, as adjusted $ 983,620   $ 1,010,249 (2.6 )%
   

 
Year Ended

December 31,
2014 2013 % Change
 
Consolidated sales, as reported $ 22,768,674 $ 21,357,285 6.6 %
Impact of changes in foreign currencies - (79,013 )
Impact of acquisitions   160,212   1,081,645
Consolidated sales, as adjusted $ 22,928,886 $ 22,359,917 2.5 %
 
Global components sales, as reported $ 14,313,026 $ 13,495,766 6.1 %
Impact of changes in foreign currencies - (3,278 )
Impact of acquisitions   78,631   320,922
Global components sales, as adjusted $ 14,391,657 $ 13,813,410 4.2 %
 
Europe components sales, as reported $ 3,819,427 $ 3,590,311 6.4 %
Impact of changes in foreign currencies - 9,794
Impact of acquisitions   15,744   47,683
Europe components sales, as adjusted $ 3,835,171 $ 3,647,788 5.1 %
 
Global ECS sales, as reported $ 8,455,648 $ 7,861,519 7.6 %
Impact of changes in foreign currencies - (75,735 )
Impact of acquisitions   81,581   760,723
Global ECS sales, as adjusted $ 8,537,229 $ 8,546,507 (0.1 )%
 

Europe ECS sales, as reported
$ 3,044,677 $ 2,631,258 15.7 %
Impact of changes in foreign currencies - (42,231 )
Impact of acquisitions   -   531,395
Europe ECS sales, as adjusted $ 3,044,677 $ 3,120,422 (2.4 )%
 
 
           

ARROW ELECTRONICS, INC.

(In thousands except per share data)

(Unaudited)

 

NON-GAAP EARNINGS RECONCILIATION
 

 
Quarter Ended

December 31,
Year Ended

December 31,
2014       2013 2014     2013
       
Operating income, as reported $ 176,432 $ 237,337 $ 762,257 $ 693,500
Intangible assets amortization expense 11,138 10,007 44,063 36,769
Restructuring, integration, and other charges 14,660 18,248 39,841 92,650
Trade name impairment charge   78,000   -   78,000   -
Operating income, as adjusted $ 280,230 $ 265,592 $ 924,161 $ 822,919
 
Net income attributable to shareholders, as reported $ 116,177 $ 134,831 $ 498,045 $ 399,420
Intangible assets amortization expense 9,105 8,120 35,965 29,339
Restructuring, integration, and other charges 11,222 13,341 29,324 65,601
Trade name impairment charge 47,911 - 47,911 -
Gain on sale of investment - - (18,269 ) -
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 $ 184,415 $ 172,036 $ 592,976 $ 519,032
 
Net income per basic share, as reported $ 1.20 $ 1.34 $ 5.05 $ 3.89
Intangible assets amortization expense .09 .08 .36 .29
Restructuring, integration, and other charges .12 .13 .30 .64
Trade name impairment charge .49 - .49 -
Gain on sale of investment - (.19 ) -
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 $ 1.91 $ 1.71 $ 6.01 $ 5.06
 
Net income per diluted share, as reported $ 1.18 $ 1.32 $ 4.98 $ 3.85
Intangible assets amortization expense .09 .08 .36 .28
Restructuring, integration, and other charges .11 .13 .29 .63
Trade name impairment charge .49 - .48 -
Gain on sale of investment - - (.18 ) -
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 $ 1.88 $ 1.69 $ 5.93 $ 5.01
 

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.

(In thousands except per share data)

(Unaudited)

 

SEGMENT INFORMATION
 
Quarter Ended

December 31,

Year Ended

December 31,
2014       2013 2014       2013
Sales:  
Global components $ 3,591,212 $ 3,437,211 $ 14,313,026 $ 13,495,766
Global ECS   2,805,667   2,716,149   8,455,648   7,861,519
Consolidated $ 6,396,879 $ 6,153,360 $ 22,768,674 $ 21,357,285
 
Operating income (loss):
Global components $ 153,753 $ 143,078 $ 653,992 $ 575,612
Global ECS 160,251 148,372 389,571 350,442

Corporate(a)
  (137,572 )   (54,113 )   (281,306 )   (232,554 )
Consolidated $ 176,432 $ 237,337 $ 762,257 $ 693,500
          (a)    

Includes restructuring, integration, and other charges of $14.7 million and $39.8 million for the quarter and year ended December 31, 2014, respectively, and $18.2 million and $92.7 million for the quarter and year ended December 31, 2013, respectively. Also included is a non-cash impairment charge of $78.0 million for the quarter and year ended December 31, 2014, which is related to the discontinuation of a trade name of a business in the global ECS business segment.
 
 
             

NON-GAAP SEGMENT RECONCILIATION
 
Quarter Ended

December 31,

Year Ended

December 31,
2014       2013 2014    

2013
Global components operating income, as reported $ 153,753 $ 143,078 $ 653,992 $ 575,612
Intangible assets amortization expense   5,463   5,090   21,962   20,038
Global components operating income, as adjusted $ 159,216 $ 148,168 $ 675,954 $ 595,650
 
Global ECS operating income, as reported $ 160,251 $ 148,372 $ 389,571 $ 350,442
Intangible assets amortization expense   5,675   4,917   22,101   16,731
Global ECS operating income, as adjusted $ 165,926 $ 153,289 $ 411,672 $ 367,173
 
 
                     

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands except per share data)
 
Quarter Ended

December 31,

 

Year Ended

December 31,
2014  

 

2013

 

2014
2013
(Unaudited)
 
Sales $ 6,396,879 $ 6,153,360 $ 22,768,674 $ 21,357,285
Costs and expenses:
Cost of sales 5,581,020 5,365,735 19,772,779 18,566,356
Selling, general, and administrative expenses 506,074 497,439 1,959,749 1,873,638
Depreciation and amortization 40,693 34,601 156,048 131,141
Restructuring, integration, and other charges 14,660 18,248 39,841 92,650
Trade name impairment charge   78,000   -   78,000   -
  6,220,447   5,916,023   22,006,417   20,663,785
Operating income 176,432 237,337 762,257 693,500
Equity in earnings of affiliated companies 2,528 2,202 7,318 7,429
Gain on sale of investment - - 29,743 -
Loss on prepayment of debt - - - 4,277
Interest and other financing expense, net   29,906   27,537   115,985   114,433
Income before income taxes 149,054 212,002 683,333 582,219
Provision for income taxes   32,768   77,083   184,943   182,343
Consolidated net income 116,286 134,919 498,390 399,876
Noncontrolling interests   109   88   345   456
Net income attributable to shareholders $ 116,177 $ 134,831 $ 498,045 $ 399,420
Net income per share:
Basic $ 1.20 $ 1.34 $ 5.05 $ 3.89
Diluted $ 1.18 $ 1.32 $ 4.98 $ 3.85
Weighted average shares outstanding:
Basic 96,794 100,513 98,675 102,559
Diluted 98,102 101,850 99,947 103,699
 
 
     

ARROW ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except par value)
 
December 31,
2014               2013
ASSETS
Current assets:
Cash and cash equivalents $ 400,355 $ 390,602

Accounts receivable, net

6,043,850

5,769,759
Inventories 2,335,257 2,167,287
Other current assets   253,145   258,122
Total current assets   9,032,607   8,585,770
Property, plant, and equipment, at cost:
Land 23,770 24,051
Buildings and improvements 144,530 142,583
Machinery and equipment   1,146,045   1,113,987
1,314,345 1,280,621
Less: Accumulated depreciation and amortization   (678,046 )   (648,232 )
Property, plant, and equipment, net   636,299   632,389
Investments in affiliated companies 69,124 67,229
Intangible assets, net 335,711 426,069
Cost in excess of net assets of companies acquired 2,069,209 2,039,293
Other assets   299,906   310,133
Total assets $ 12,442,856 $ 12,060,883
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 5,027,103 $ 4,503,200
Accrued expenses 797,464 774,868

Short-term borrowings, including current portion of long-term debt
  13,454   23,878
Total current liabilities   5,838,021   5,301,946
 
Long-term debt 2,075,453 2,226,132
Other liabilities 370,471 347,977
 
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized - 160,000 shares in both 2014 and 2013
Issued - 125,424 shares in both 2014 and 2013 125,424 125,424
Capital in excess of par value 1,086,082 1,071,075

Treasury stock (29,529 and 25,488 shares in 2014 and 2013, respectively), at cost
(1,169,673 ) (920,528 )
Retained earnings 4,176,754 3,678,709
Accumulated other comprehensive income   (64,617 )   225,552
Total shareholders' equity 4,153,970 4,180,232
 
Noncontrolling interests   4,941   4,596
Total equity   4,158,911   4,184,828
Total liabilities and equity $ 12,442,856 $ 12,060,883
 
 
     

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)
 
Quarter Ended

December 31,
2014               2013
Cash flows from operating activities:
Consolidated net income $ 116,286 $ 134,919
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 40,693 34,601
Amortization of stock-based compensation 10,647 12,676
Equity in earnings of affiliated companies (2,528 ) (2,202 )
Deferred income taxes (37,112 ) (15,038 )
Restructuring, integration, and other charges 11,222 13,341
Trade name impairment charge 78,000 -
Gain on sale of investment - -
Excess tax benefits from stock-based compensation arrangements (152 ) (235 )
Other 657 725
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable (1,078,058 ) (959,428 )
Inventories (112,860 ) 72,903
Accounts payable 1,260,888 808,163
Accrued expenses 162,561 80,044
Other assets and liabilities   6,809   34,577
Net cash provided by operating activities   457,053   215,046
 
Cash flows from investing activities:
Cash consideration paid for acquired businesses (33,359 ) (324,548 )
Acquisition of property, plant, and equipment   (34,624 )   (30,697 )
Net cash used for investing activities   (67,983 )   (355,245 )
 
Cash flows from financing activities:
Change in short-term and other borrowings (3,298 ) (9,058 )
Proceeds from (repayment of) long-term bank borrowings, net (134,800 ) 314,300
Proceeds from exercise of stock options 775 5,646
Excess tax benefits from stock-based compensation arrangements 152 235
Repurchases of common stock (115,352 ) (50,180 )
Other   (1,499 )   -
Net cash provided by (used for) financing activities   (254,022 )   260,943
 
Effect of exchange rate changes on cash   7,074   18,068
Net increase in cash and cash equivalents 142,122 138,812
Cash and cash equivalents at beginning of period   258,233   251,790
Cash and cash equivalents at end of period $ 400,355 $ 390,602
 
 
                   

ARROW ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
 

Year Ended

December 31,
2014 2013
Cash flows from operating activities:
Consolidated net income $ 498,390 $ 399,876
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization 156,048 131,141
Amortization of stock-based compensation 41,930 36,923
Equity in earnings of affiliated companies (7,318 ) (7,429 )
Deferred income taxes (25,744 ) 273
Restructuring, integration, and other charges 29,324 65,601
Trade name impairment charge 78,000 -
Gain on sale of investment (18,269 ) -
Excess tax benefits from stock-based compensation arrangements (7,129 ) (7,172 )
Other 2,686 3,534
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable (521,613 ) (572,886 )
Inventories (210,789 ) (21,277 )
Accounts payable 628,697 446,814
Accrued expenses 12,396 (123,969 )
Other assets and liabilities   16,692   99,262
Net cash provided by operating activities   673,301   450,691
 
Cash flows from investing activities:
Cash consideration paid for acquired businesses (162,881 ) (367,940 )
Acquisition of property, plant, and equipment (122,505 ) (116,162 )
Proceeds from sale of investment 40,542 -
Purchase of cost method investments   -   (3,000 )
Net cash used for investing activities   (244,844 )   (487,102 )
 
Cash flows from financing activities:
Change in short-term and other borrowings (12,541 ) (31,340 )
Proceeds from (repayment of) long-term bank borrowings, net (145,000 ) 71,400
Net proceeds from note offering - 591,156
Redemption of senior notes - (338,184 )
Proceeds from exercise of stock options 21,788 36,014
Excess tax benefits from stock-based compensation arrangements 7,129 7,172
Repurchases of common stock (304,763 ) (362,793 )
Other   (1,499 )   -
Net cash used for financing activities   (434,886 )   (26,575 )
 
Effect of exchange rate changes on cash   16,182   43,904
Net increase (decrease) in cash and cash equivalents 9,753 (19,082 )
Cash and cash equivalents at beginning of period   390,602   409,684
Cash and cash equivalents at end of period $ 400,355 $ 390,602
 

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