Arrow Electronics Reports Second-Quarter Results

-- Sales of $5.15 Billion and Non-GAAP Earnings Per Share of $1.11 --

-- Generated More Than $575 Million in Cash from Operations over Last 12 Months --

ENGLEWOOD, Colo.--(BUSINESS WIRE)--Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2012 net income of $114.4 million, or $1.02 per share on a diluted basis, compared with net income of $156.2 million, or $1.33 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, net income of $124.1 million, or $1.11 per share on a diluted basis, in the second quarter of 2012 compared with net income of $159.8 million, or $1.36 per share on a diluted basis, in the second quarter of 2011. Second-quarter sales of $5.15 billion declined 7 percent from sales of $5.54 billion in the prior year. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 5 percent year over year.

“In a challenging macroeconomic environment that weakened throughout the quarter, we executed well, with sales and earnings per share in line with our expectations. Although the macro environment continues to be challenging, we remain committed to selectively investing in line with our strategic priorities to drive organic growth and strengthen the business. At the same time, we are taking $20 million in additional cost and expense reduction actions as we continue to advance the efficiency of our organization,” said Michael J. Long, chairman, president, and chief executive officer.

“We remain focused on our key financial objectives and have generated more than $575 million in cash flow from operations over the last 12 months, well in excess of our target,” said Paul J. Reilly, executive vice president, finance and operations and chief financial officer. “We again delivered return on invested capital substantially ahead of our weighted average cost of capital.”

Global enterprise computing solutions (“ECS”) second-quarter sales of $1.70 billion increased 2 percent year over year. Sales were in line with our expectations driven by another quarter of strong performance in ECS Europe, with sales increasing 12 percent year over year in local currency, as our supplier matrix expansion strategy continues to pay dividends. In the Americas we performed very well, growing sales 3 percent year over year, even as market growth has slowed. On a global basis, we saw solid double-digit year-over-year growth in services, storage, and software, offset by declines in servers. During the quarter we completed the acquisition of The Altimate Group, a value-added distributor of enterprise and midrange computing products, services, and solutions. This transaction further strengthens our relationships with key hardware, software and storage suppliers in Europe, supporting the strategic initiative to extend the ECS product matrix across the region.

Global components second-quarter sales of $3.45 billion decreased 11 percent year over year. Sales in the Asia Pacific region were ahead of normal seasonality and our expectations on a sequential basis driven by strength in China and Taiwan, and declined 6 percent from the prior year. In the Americas sales were in line with normal seasonality on a sequential basis, and declined 4 percent year over year, as the business continues to perform well in a choppy market. Sales in our vertical lighting channel continue to outpace the market. European sales, while in line with normal seasonality, were down 14 percent year over year in local currency.

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2012 was $228.0 million, or $2.02 per share on a diluted basis, compared with net income of $292.5 million, or $2.49 per share on a diluted basis, in the first six months of 2011. Sales of $10.04 billion declined 7 percent year over year from sales of $10.76 billion in the year-ago period. Pro forma for acquisitions and excluding the impact of foreign currency, sales declined 6 percent year over year in the first six months of 2012.

Excluding certain items in both the first six months of 2012 and 2011 as described in the non-GAAP earnings reconciliation found below, net income would have been $243.9 million, or $2.16 per share on a diluted basis, for the first six months of 2012 compared with $305.8 million, or $2.60 per share on a diluted basis, for the first six months of 2011.

GUIDANCE

“Looking ahead, we believe that total third-quarter sales will be between $4.8 and $5.2 billion, with global components sales between $3.3 and $3.5 billion and global enterprise computing solutions sales between $1.5 and $1.7 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $1.00 to $1.12. Our guidance assumes that the average Euro to USD exchange rate for the third quarter is 1.21 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 120,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 390 locations in 53 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 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, acquisitions, and settlement of certain legal 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) (unaudited)
	Quarter Ended				Six Months Ended
	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Operating income, as reported	$	188,689	$	248,330	$	376,138	$	467,498
Restructuring, integration, and other charges		13,347		5,221		21,590		14,828
Settlement of legal matter		-		-		-		5,875
Operating income, as adjusted	$	202,036	$	253,551	$	397,728	$	488,201
Net income attributable to shareholders, as reported	$	114,383	$	156,197	$	228,011	$	292,506
Restructuring, integration, and other charges		9,702		3,584		15,843		10,783
Settlement of legal matter		-		-		-		3,609
Gain on bargain purchase		-		-		-		(1,078	)
Net income attributable to shareholders, as adjusted	$	124,085	$	159,781	$	243,854	$	305,820
Net income per basic share, as reported		1.04	$	1.35	$	2.05	$	2.54
Restructuring, integration, and other charges		.09		.03		.14		.09
Settlement of legal matter		-		-		-		.03
Gain on bargain purchase		-		-		-		(.01	)
Net income per basic share, as adjusted	$	1.12	$	1.38	$	2.19	$	2.65
Net income per diluted share, as reported	$	1.02	$	1.33	$	2.02	$	2.49
Restructuring, integration, and other charges		.09		.03		.14		.09
Settlement of legal matter		-		-		-		.03
Gain on bargain purchase		-		-		-		(.01	)
Net income per diluted share, as adjusted	$	1.11	$	1.36	$	2.16	$	2.60
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, 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) (unaudited)
	Quarter Ended				Six Months Ended
	June 30, 2012		July 2, 2011		June 30, 2012		July 2, 2011
Sales	$	5,150,563	$	5,539,931	$	10,040,092	$	10,762,934
Costs and expenses:
Cost of sales		4,463,419		4,769,784		8,672,369		9,270,279
Selling, general and administrative expenses		457,073		490,590		912,910		955,510
Depreciation and amortization		28,035		26,006		57,085		48,944
Restructuring, integration, and other charges		13,347		5,221		21,590		14,828
Settlement of legal matter		-		-		-		5,875
		4,961,874		5,291,601		9,663,954		10,295,436
Operating income		188,689		248,330		376,138		467,498
Equity in earnings of affiliated companies		1,428		1,408		3,612		2,621
Gain on bargain purchase		-		-		-		1,755
Interest and other financing expense, net		28,555		26,536		55,687		52,303
Income before income taxes		161,562		223,202		324,063		419,571
Provision for income taxes		47,081		66,891		95,859		126,763
Consolidated net income		114,481		156,311		228,204		292,808
Noncontrolling interests		98		114		193		302
Net income attributable to shareholders	$	114,383	$	156,197	$	228,011	$	292,506
Net income per share:
Basic	$	1.04	$	1.35	$	2.05	$	2.54
Diluted	$	1.02	$	1.33	$	2.02	$	2.49
Average number of shares outstanding:
Basic		110,433		115,434		111,218		115,323
Diluted		112,031		117,469		113,079		117,463

ARROW ELECTRONICS, INC. CONSOLIDATED BALANCE SHEETS (In thousands except par value)
	June 30,			December 31,
	2012			2011
ASSETS	(unaudited)
Current assets:
Cash and cash equivalents	$	325,832		$	396,887
Accounts receivable, net		4,401,677			4,482,117
Inventories		2,074,777			1,963,910
Other current assets		223,138			181,677
Total current assets		7,025,424			7,024,591
Property, plant and equipment, at cost:
Land		23,776			23,790
Buildings and improvements		145,934			147,215
Machinery and equipment		975,385			934,558
		1,145,095			1,105,563
Less: Accumulated depreciation and amortization		(573,124	)		(549,334	)
Property, plant and equipment, net		571,971			556,229
Investments in affiliated companies		62,182			60,579
Intangible assets, net		406,324			392,763
Cost in excess of net assets of companies acquired		1,638,862			1,473,333
Other assets		330,139			321,584
Total assets	$	10,034,902		$	9,829,079
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	3,440,928		$	3,264,088
Accrued expenses		611,878			660,996
Short-term borrowings, including current portion of long-term debt		27,412			33,843
Total current liabilities		4,080,218			3,958,927
Long-term debt		1,957,873			1,927,823
Other liabilities		273,085			267,069
Equity:
Shareholders' equity:
Common stock, par value $1:
Authorized – 160,000 shares in 2012 and 2011
Issued – 125,424 and 125,382 shares in 2012 and 2011, respectively		125,424			125,382
Capital in excess of par value		1,068,529			1,076,275
Treasury stock (16,637 and 13,568 shares in 2012 and 2011, respectively), at cost		(555,110	)		(434,959	)
Retained earnings		3,000,968			2,772,957
Foreign currency translation adjustment		110,916			158,550
Other		(30,944	)		(29,393	)
Total shareholders' equity		3,719,783			3,668,812
Noncontrolling interests		3,943			6,448
Total equity		3,723,726			3,675,260
Total liabilities and equity	$	10,034,902		$	9,829,079

ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
	Quarter Ended
	June 30, 2012			July 2, 2011
Cash flows from operating activities:
Consolidated net income	$	114,481		$	156,311
Adjustments to reconcile consolidated net income to net cash provided by operations:
Depreciation and amortization		28,035			26,006
Amortization of stock-based compensation		6,891			10,821
Equity in earnings of affiliated companies		(1,428	)		(1,408	)
Deferred income taxes		(2,629	)		573
Restructuring, integration, and other charges		9,702			3,584
Excess tax benefits from stock-based compensation arrangements		(34	)		(1,152	)
Other		(1,440	)		734
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable		(214,037	)		(164,965	)
Inventories		(81,464	)		(151,785	)
Accounts payable		244,623			163,088
Accrued expenses		(10,065	)		(2,142	)
Other assets and liabilities		(32,016	)		(4,698	)
Net cash provided by operating activities		60,619			34,967
Cash flows from investing activities:
Cash consideration paid for acquired businesses		(26,654	)		(63,324	)
Acquisition of property, plant and equipment		(26,611	)		(42,163	)
Purchase of cost method investment		(15,000	)		-
Net cash used for investing activities		(68,265	)		(105,487	)
Cash flows from financing activities:
Change in short-term and other borrowings		(3,503	)		(2,464	)
Proceeds from long-term bank borrowings, net		(291,900	)		101,700
Proceeds from exercise of stock options		628			18,996
Excess tax benefits from stock-based compensation arrangements		34			1,152
Repurchases of common stock		(100,114	)		(50,414	)
Net cash provided by (used for) financing activities		(394,855	)		68,970
Effect of exchange rate changes on cash		(11,375	)		11,272
Net increase (decrease) in cash and cash equivalents		(413,876	)		9,722
Cash and cash equivalents at beginning of period		739,708			521,302
Cash and cash equivalents at end of period	$	325,832		$	531,024

ARROW ELECTRONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (unaudited)
	Six Months Ended
	June 30, 2012			July 2, 2011
Cash flows from operating activities:
Consolidated net income	$	228,204		$	292,808
Adjustments to reconcile consolidated net income to net cash provided by (used for) operations:
Depreciation and amortization		57,085			48,944
Amortization of stock-based compensation		14,146			21,178
Equity in earnings of affiliated companies		(3,612	)		(2,621	)
Deferred income taxes		16,332			(484	)
Restructuring, integration, and other charges		15,843			10,783
Settlement of legal matter		-			3,609
Excess tax benefits from stock-based compensation arrangements		(4,981	)		(6,880	)
Other		(2,897	)		373
Change in assets and liabilities, net of effects of acquired businesses:
Accounts receivable		119,977			113,584
Inventories		(105,821	)		(113,804	)
Accounts payable		109,425			(410,915	)
Accrued expenses		(74,629	)		(45,251	)
Other assets and liabilities		(58,118	)		(56,026	)
Net cash provided by (used for) operating activities		310,954			(144,702	)
Cash flows from investing activities:
Cash consideration paid for acquired businesses		(187,197	)		(442,337	)
Acquisition of property, plant and equipment		(48,864	)		(60,340	)
Purchase of cost method investment		(15,000	)		-
Net cash used for investing activities		(251,061	)		(502,677	)
Cash flows from financing activities:
Change in short-term and other borrowings		(12,577	)		(6,364	)
Proceeds from long-term bank borrowings, net		37,800			292,500
Proceeds from exercise of stock options		10,766			46,146
Excess tax benefits from stock-based compensation arrangements		4,981			6,880
Repurchases of common stock		(157,798	)		(96,861	)
Net cash provided by (used for) financing activities		(116,828	)		242,301
Effect of exchange rate changes on cash		(14,120	)		9,781
Net decrease in cash and cash equivalents		(71,055	)		(395,297	)
Cash and cash equivalents at beginning of period		396,887			926,321
Cash and cash equivalents at end of period	$	325,832		$	531,024

ARROW ELECTRONICS, INC. SEGMENT INFORMATION (In thousands) (unaudited)
	Quarter Ended						Six Months Ended
	June 30, 2012			July 2, 2011			June 30, 2012			July 2, 2011
Sales:
Global components	$	3,453,687		$	3,875,331		$	6,803,241		$	7,761,931
Global ECS		1,696,876			1,664,600			3,236,851			3,001,003
Consolidated	$	5,150,563		$	5,539,931		$	10,040,092		$	10,762,934
Operating income (loss):
Global components	$	170,524		$	224,035		$	341,232		$	452,916
Global ECS		65,961			63,690			121,448			102,770
Corporate (a)		(47,796	)		(39,395	)		(86,542	)		(88,188	)
Consolidated	$	188,689		$	248,330		$	376,138		$	467,498

(a)

Includes restructuring, integration, and other charges of $13.3 million and $21.6 million for the second quarter and first six months of 2012 and $5.2 million and $14.8 million for the second quarter and first six months of 2011, respectively. Also included in the first six months of 2011 is a charge of $5.9 million related to the settlement of a legal matter.