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November 2, 2017 8:05 AM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549


FORM 8-K


CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Date of Report (Date of earliest event reported): November 2, 2017


ARROW ELECTRONICS, INC.
(Exact Name of Registrant as Specified in Charter)

 
NEW YORK
1-4482
11-1806155
(State or Other Jurisdiction
(Commission
(IRS Employer
of Incorporation)
File Number)
Identification No.)


9201 EAST DRY CREEK ROAD, CENTENNIAL, COLORADO  80112
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (303) 824-4000


Not Applicable
(Former Name or Former Address, if Changed Since Last Report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
            
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 





  ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On November 2, 2017, the Registrant issued a press release announcing its third quarter 2017 earnings.  A copy of the press release is attached hereto as an Exhibit (99.1).

On November 2, 2017, the Registrant also issued a press release containing a Third Quarter 2017 CFO commentary related to its third quarter 2017 earnings.  A copy of that press release is attached hereto as an Exhibit (99.2).

The information in this Current Report on Form 8-K and the Exhibit attached hereto is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 (the "Exchange Act") or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of any general incorporation language in such filing.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS

(d)           EXHIBITS

99.1 Earnings press release dated November 2, 2017.

99.2 CFO commentary press release dated November 2, 2017.



SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
 
 
ARROW ELECTRONICS, INC.
 
 
 
 
 
 
 
 
 
Date: 
November 2, 2017
 
By:
/s/ Gregory Tarpinian
 
 
 
Name:
Gregory Tarpinian
 
 
 
Title:
Secretary and Chief Legal Officer

 
EXHIBIT INDEX





ARROW ELECTRONICS. INC.
9201 E. DRY CREEKROAD
CENTENNIAL, CO 80112
303-824-4000
 
NEWS


Exhibit 99.1
Arrow Electronics Reports Third-Quarter Results
-- Record Third-Quarter Sales, Gross Profit and Earnings per Share --
-- Third-Quarter Earnings per Share Up 17 Percent Year over Year --
CENTENNIAL, Colo.--(BUSINESS WIRE)-Nov. 2, 2017--Arrow Electronics, Inc. (NYSE: ARW) today reported third-quarter 2017 sales of $6.95 billion, an increase of 17 percent from sales of $5.94 billion in the third quarter of 2016. Third-quarter net income of $135 million, or $1.50 per share on a diluted basis, compared with net income of $118 million, or $1.28 per share on a diluted basis, in the third quarter of 2016. Excluding certain items1, net income would have been $163 million, or $1.82 per share on a diluted basis, in the third quarter of 2017, compared with net income of $143 million, or $1.56 per share on a diluted basis, in the third quarter of 2016.
“We are capitalizing on tremendous growth opportunities for the business, and are delivering successful outcomes to both our customers and suppliers. Our ability to provide solutions spanning from sensor to sunset of electronic products’ lifecycles is unmatched in the distribution and the broader technology industries,” said Michael J. Long, chairman, president, and chief executive officer. “Our third straight quarter of record results highlights our leadership position.”
Global components third-quarter sales of $4.86 billion grew 25 percent year over year. Americas components sales grew 24 percent year over year. Asia-Pacific components sales grew 24 percent year over year. Europe components sales grew 25 percent year over year. Sales in the region, as adjusted, grew 19 percent year over year. Global components third-quarter operating income grew 21 percent year over year and grew 20 percent year over year excluding amortization of intangibles expense. “As we expected, we have started to capture leverage on our market share gains as evidenced by our accelerating profit growth,” said Mr. Long.
Global enterprise computing solutions third-quarter sales of $2.09 billion grew 3 percent year over year. Europe enterprise computing solutions sales grew 16 percent year over year. Sales in the region, as adjusted, grew 11 percent year over year. Americas enterprise computing solutions sales declined 2 percent year over year. Global enterprise computing solutions third-quarter operating income declined 1 percent year over year and declined 2 percent year over year excluding amortization of intangibles expense. “Continued growth in our infrastructure software and cloud portfolio along with growth in servers drove sales higher this quarter, and we remain confident in our strategy to return to profitable growth in enterprise computing solutions,” added Mr. Long.
“Third-quarter cash flow from operations was $135 million. We made substantial investments to support our rapid growth this year, and our disciplined approach to working capital management allowed us to start seeing significant cash returns on those investments,” said Chris Stansbury, senior vice president and chief financial officer. “We remain committed to returning excess cash to shareholders. During the third quarter we returned approximately $25 million to shareholders through our stock repurchase program. We had approximately $384 million of remaining authorization under our share repurchase program at the end of the third quarter.”
NINE-MONTH RESULTS
In the first nine months of 2017, sales of $19.18 billion increased 10 percent from sales of $17.38 billion in the first nine months of 2016. Net income for the first nine months of 2017 was $348 million, or $3.87 per share on a diluted basis, compared with net income of $358 million, or $3.87 per share on a diluted basis in the first nine months of 2016. Excluding certain items1, net income would have been $455 million, or $5.06 per share on a diluted basis, in the first nine months of 2017 compared with net income of $428 million, or $4.63 per share on a diluted basis, in the first nine months of 2016.









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.

arrowlogo.jpg
 
 


GUIDANCE
“As we look to the fourth quarter, we believe that total sales will be between $7.2 billion and $7.6 billion, with global components sales between $4.75 billion and $4.95 billion, and global enterprise computing solutions sales between $2.45 billion and $2.65 billion. As a result of this outlook, we expect earnings per share on a diluted basis, to be in the range of $1.86 to $2.02, and earnings per share on a diluted basis, excluding certain items1, to be in the range of $2.21 to $2.37 per share. Our guidance assumes interest expense will be approximately $44 million. The increase compared to the third quarter is due to slightly higher interest rates on our new long-term borrowings compared to our short-term borrowings, as well as normal, higher intra-quarter borrowings to support our seasonally largest quarter. Our guidance also assumes an average tax rate of 27 to 29 percent and average diluted shares outstanding are expected to be 89 million. We are expecting the average USD-to-Euro exchange rate for the fourth quarter to be approximately $1.18 to €1. At the midpoints of our fourth-quarter guidance ranges, full-year 2017 sales would total approximately $26.58 billion, and would grow 12 percent compared to full-year 2016. Full-year 2017 earnings per share, on a diluted basis, excluding certain items1, would total approximately $7.35 and would grow 11 percent compared to full-year 2016,” said Mr. Stansbury.
Please refer to the CFO commentary, which can be found at investor.arrow.com, 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 125,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 465 locations serving over 90 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 Dec. 31, 2016.
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, income, or expense on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company's operating results for businesses acquired, including the amortization expense related to acquired intangible assets, 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 to exclude identifiable intangible amortization, restructuring, integration, and other charges, and 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), and financing activities. 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.

arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
Nine Months Ended
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
 
 
 
 
 
 
 
 
Sales
$
6,953,740

 
$
5,936,092

 
$
19,178,638

 
$
17,382,370

Cost of sales
6,110,382

 
5,162,930

 
16,751,427

 
15,061,519

Gross profit
843,358

 
773,162

 
2,427,211

 
2,320,851

Operating expenses:
 
 
 
 
 
 
 
Selling, general, and administrative expenses
552,896

 
510,017

 
1,600,762

 
1,534,534

Depreciation and amortization
38,574

 
40,194

 
113,096

 
121,516

Restructuring, integration, and other charges
15,896

 
24,267

 
55,817

 
61,161

 
607,366

 
574,478

 
1,769,675

 
1,717,211

Operating income
235,992

 
198,684

 
657,536

 
603,640

Equity in earnings of affiliated companies
1,216

 
1,311

 
2,865

 
5,394

Loss on investment, net
15,000

 
—

 
14,250

 
—

Loss on extinguishment of debt
786

 
—

 
59,545

 
—

Interest and other financing expense, net
39,748

 
37,229

 
120,179

 
111,828

Income before income taxes
181,674

 
162,766

 
466,427

 
497,206

Provision for income taxes
46,199

 
44,931

 
114,998

 
137,441

Consolidated net income
135,475

 
117,835

 
351,429

 
359,765

Noncontrolling interests
845

 
108

 
3,352

 
1,533

Net income attributable to shareholders
$
134,630

 
$
117,727

 
$
348,077

 
$
358,232

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
1.52

 
$
1.29

 
$
3.92

 
$
3.92

Diluted
$
1.50

 
$
1.28

 
$
3.87

 
$
3.87

 
 
 
 
 
 
 
 
Weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic
88,453

 
90,937

 
88,870

 
91,412

Diluted
89,540

 
91,938

 
89,936

 
92,487



arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
 
 
 
 
 
September 30, 2017
 
December 31, 2016
 
(Unaudited)

 
 
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
584,339

 
$
534,320

Accounts receivable, net
7,070,629

 
6,746,687

Inventories
3,168,769

 
2,855,645

Other current assets
215,431

 
180,069

Total current assets
11,039,168

 
10,316,721

Property, plant, and equipment, at cost:
 

 
 

Land
12,852

 
23,456

Buildings and improvements
158,865

 
175,141

Machinery and equipment
1,306,891

 
1,297,657

 
1,478,608

 
1,496,254

Less: Accumulated depreciation and amortization
(663,229
)
 
(739,955
)
Property, plant, and equipment, net
815,379

 
756,299

Investments in affiliated companies
86,626

 
88,401

Intangible assets, net
307,385

 
336,882

Goodwill
2,470,576

 
2,392,220

Other assets
337,832

 
315,843

Total assets
$
15,056,966

 
$
14,206,366

LIABILITIES AND EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
5,799,723

 
$
5,774,151

Accrued expenses
799,066

 
821,244

Short-term borrowings, including current portion of long-term debt
380,208

 
93,827

Total current liabilities
6,978,997

 
6,689,222

Long-term debt
2,802,960

 
2,696,334

Other liabilities
349,717

 
355,190

Commitments and contingencies (Note L)


 


Equity:
 

 
 

Shareholders' equity:
 

 
 

Common stock, par value $1:
 

 
 

Authorized - 160,000 shares in both 2017 and 2016
 

 
 

Issued - 125,424 shares in both 2017 and 2016
125,424

 
125,424

Capital in excess of par value
1,107,125

 
1,112,114

Treasury stock (37,463 and 36,511 shares in 2017 and 2016, respectively), at cost
(1,739,473
)
 
(1,637,476
)
Retained earnings
5,545,307

 
5,197,230

Accumulated other comprehensive loss
(159,315
)
 
(383,854
)
Total shareholders' equity
4,879,068

 
4,413,438

Noncontrolling interests
46,224

 
52,182

Total equity
4,925,292

 
4,465,620

Total liabilities and equity
$
15,056,966

 
$
14,206,366



arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Quarter Ended
 
September 30, 2017
 
October 1, 2016
Cash flows from operating activities:
 
 
 
Consolidated net income
$
135,475

 
$
117,835

Adjustments to reconcile consolidated net income to net cash provided by operations:
 
 
 
Depreciation and amortization
38,574

 
40,194

Amortization of stock-based compensation
8,910

 
10,508

Equity in earnings of affiliated companies
(1,216
)
 
(1,311
)
Loss on extinguishment of debt
786

 
—

Deferred income taxes
1,437

 
2,522

Loss on investments, net
14,250

 
—

Other
2,207

 
1,510

Change in assets and liabilities, net of effects of acquired businesses:
 
 
 
Accounts receivable
(457,037
)
 
(193,791
)
Inventories
(105,875
)
 
(95,184
)
Accounts payable
487,904

 
93,313

Accrued expenses
48,291

 
11,826

Other assets and liabilities
(38,817
)
 
38,199

Net cash provided by operating activities
134,889

 
25,621


 
 
 
Cash flows from investing activities:
 
 
 
Cash consideration paid for acquired businesses
(1,094
)
 
(23,473
)
Acquisition of property, plant, and equipment
(47,691
)
 
(38,005
)
Other
533

 
—

Net cash used for investing activities
(48,252
)
 
(61,478
)

 
 
 
Cash flows from financing activities:
 
 
 
Change in short-term and other borrowings
(54,697
)
 
(35,670
)
Proceeds from (repayments of) long-term bank borrowings, net
(324,584
)
 
87,000

Proceeds from note offerings, net
492,519

 
—

Redemption of notes
2,214

 
—

Proceeds from exercise of stock options
726

 
1,842

Repurchases of common stock
(25,462
)
 
(120,345
)
Other
(675
)
 
(1,183
)
Net cash provided by (used for) financing activities
90,041

 
(68,356
)
Effect of exchange rate changes on cash
(12,257
)
 
(7,143
)
Net increase (decrease) in cash and cash equivalents
164,421

 
(111,356
)
Cash and cash equivalents at beginning of period
419,918

 
495,771

Cash and cash equivalents at end of period
$
584,339

 
$
384,415



arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
September 30, 2017
 
October 1, 2016
Cash flows from operating activities:
 
 
 
Consolidated net income
$
351,429

 
$
359,765

Adjustments to reconcile consolidated net income to net cash provided by operations:

 

Depreciation and amortization
113,096

 
121,516

Amortization of stock-based compensation
30,301

 
29,783

Equity in earnings of affiliated companies
(2,865
)
 
(5,394
)
Loss on extinguishment of debt
59,545

 
—

Deferred income taxes
13,262

 
30,191

Loss on investments, net
14,250

 
—

Other
7,415

 
4,464

Change in assets and liabilities, net of effects of acquired businesses:

 

Accounts receivable
(59,084
)
 
335,455

Inventories
(255,820
)
 
(117,674
)
Accounts payable
(113,804
)
 
(513,365
)
Accrued expenses
(41,810
)
 
(102,915
)
Other assets and liabilities
(114,136
)
 
(1,121
)
Net cash provided by operating activities
1,779

 
140,705


 
 
 
Cash flows from investing activities:
 
 
 
Cash consideration paid for acquired businesses
(3,628
)
 
(68,946
)
Acquisition of property, plant, and equipment
(149,597
)
 
(126,341
)
Proceeds from sale of property, plant, and equipment
24,433

 
—

Other
(2,467
)
 
(12,000
)
Net cash used for investing activities
(131,259
)
 
(207,287
)

 
 
 
Cash flows from financing activities:
 
 
 
Change in short-term and other borrowings
(14,423
)
 
31,941

Proceeds from (repayments of) long-term bank borrowings, net
(82,766
)
 
320,000

Proceeds from note offerings, net
987,144

 
—

Redemption of notes
(555,886
)
 
—

Proceeds from exercise of stock options
21,423

 
16,686

Repurchases of common stock
(149,125
)
 
(167,178
)
Purchase of shares from noncontrolling interest
(23,350
)
 
—

Other
(1,620
)
 
(3,000
)
Net cash provided by financing activities
181,397

 
198,449

Effect of exchange rate changes on cash
(1,898
)
 
(20,542
)
Net increase in cash and cash equivalents
50,019

 
111,325

Cash and cash equivalents at beginning of period
534,320

 
273,090

Cash and cash equivalents at end of period
$
584,339

 
$
384,415


arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)
 
Quarter Ended
 
 
 
September 30, 2017
 
October 1, 2016
 
% Change
 
 
 
 
 
 
Consolidated sales, as reported
$
6,953,740

 
$
5,936,092

 
17.1
 %
Impact of changes in foreign currencies
—

 
82,751

 
 
Impact of acquisitions
—

 
1,387

 
 
Consolidated sales, as adjusted
$
6,953,740

 
$
6,020,230

 
15.5
 %
 
 
 
 
 
 
Global components sales, as reported
$
4,864,361

 
$
3,904,447

 
24.6
 %
Impact of changes in foreign currencies
—

 
55,516

 
 
Impact of acquisitions
—

 
1,387

 
 
Global components sales, as adjusted
$
4,864,361

 
$
3,961,350

 
22.8
 %
 
 
 
 
 
 
Europe components sales, as reported
$
1,262,048

 
$
1,008,135

 
25.2
 %
Impact of changes in foreign currencies
—

 
48,533

 
 
Impact of acquisitions
—

 
—

 
 
Europe components sales, as adjusted
$
1,262,048

 
$
1,056,668

 
19.4
 %
 
 
 
 
 
 
Asia components sales, as reported
$
1,785,541

 
$
1,436,316

 
24.3
 %
Impact of changes in foreign currencies
—

 
6,497

 
 
Impact of acquisitions
—

 
—

 
 
Asia components sales, as adjusted
$
1,785,541

 
$
1,442,813

 
23.8
 %
 
 
 
 
 


Global ECS sales, as reported
$
2,089,379

 
$
2,031,645

 
2.8
 %
Impact of changes in foreign currencies
—

 
27,235

 
 
Impact of acquisitions
—

 
—

 
 
Global ECS sales, as adjusted
$
2,089,379

 
$
2,058,880

 
1.5
 %
 
 
 
 
 
 
Europe ECS sales, as reported
$
624,393

 
$
539,932

 
15.6
 %
Impact of changes in foreign currencies
—

 
21,589

 
 
Impact of acquisitions
—

 
—

 
 
Europe ECS sales, as adjusted
$
624,393

 
$
561,521

 
11.2
 %
 
 
 
 
 
 
Americas ECS sales, as reported
$
1,464,986

 
$
1,491,713

 
(1.8
)%
Impact of changes in foreign currencies
—

 
5,646

 
 
Impact of acquisitions
—

 
—

 
 
Americas ECS sales, as adjusted
$
1,464,986

 
$
1,497,359

 
(2.2
)%















arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
NON-GAAP SALES RECONCILIATION
(In thousands)
(Unaudited)
 
Nine Months Ended
 
 
 
September 30, 2017
 
October 1, 2016
 
% Change
 
 
 
 
 
 
Consolidated sales, as reported
$
19,178,638

 
$
17,382,370

 
10.3
 %
Impact of changes in foreign currencies
—

 
(47,238
)
 

Impact of acquisitions
—

 
48,148

 

Consolidated sales, as adjusted
$
19,178,638

 
$
17,383,280

 
10.3
 %
 
 
 
 
 
 
Global components sales, as reported
$
13,385,514

 
$
11,413,348

 
17.3
 %
Impact of changes in foreign currencies
—

 
(13,155
)
 

Impact of acquisitions
—

 
9,711

 

Global components sales, as adjusted
$
13,385,514

 
$
11,409,904

 
17.3
 %
 
 
 
 
 
 
Europe components sales, as reported
$
3,572,720

 
$
3,123,258

 
14.4
 %
Impact of changes in foreign currencies
—

 
(29,236
)
 

Impact of acquisitions
—

 
—

 

Europe components sales, as adjusted
$
3,572,720

 
$
3,094,022

 
15.5
 %
 
 
 
 
 
 
Asia components sales, as reported
$
4,732,236

 
$
3,912,613

 
20.9
 %
Impact of changes in foreign currencies
—

 
14,100

 

Impact of acquisitions
—

 
—

 

Asia components sales, as adjusted
$
4,732,236

 
$
3,926,713

 
20.5
 %
 
 
 
 
 
 
Global ECS sales, as reported
$
5,793,124

 
$
5,969,022

 
(2.9
)%
Impact of changes in foreign currencies
—

 
(34,082
)
 

Impact of acquisitions
—

 
38,437

 

Global ECS sales, as adjusted
$
5,793,124

 
$
5,973,377

 
(3.0
)%
 
 
 
 
 
 
Europe ECS sales, as reported
$
1,833,611

 
$
1,867,715

 
(1.8
)%
Impact of changes in foreign currencies
—

 
(44,291
)
 

Impact of acquisitions
—

 
—

 

Europe ECS sales, as adjusted
$
1,833,611

 
$
1,823,424

 
0.6
 %
 
 
 
 
 
 
Americas ECS sales, as reported
$
3,959,513

 
$
4,101,307

 
(3.5
)%
Impact of changes in foreign currencies
—

 
10,209

 

Impact of acquisitions
—

 
38,437

 

Americas ECS sales, as adjusted
$
3,959,513

 
$
4,149,953

 
(4.6
)%


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ARROW ELECTRONICS, INC.
NON-GAAP EARNINGS RECONCILIATION
(In thousands except per share data)
(Unaudited)
 
Three months ended September 30, 2017
 
Reported
GAAP
measure
 
Intangible
amortization
expense
 
Restructuring
& Integration
charges
 
Other*
 
Non-GAAP
measure
Operating income
$
235,992

 
$
12,645

 
$
15,896

 
$
—

 
$
264,533

Income before income taxes
181,674

 
12,645

 
15,896

 
15,786

 
226,001

Provision for income taxes
46,199

 
4,474

 
5,319

 
6,089

 
62,081

Consolidated net income
135,475

 
8,171

 
10,577

 
9,697

 
163,920

Noncontrolling interests
845

 
146

 
—

 
—

 
991

Net income attributable to shareholders
$
134,630

 
$
8,025

 
$
10,577

 
$
9,697

 
$
162,929

Net income per diluted share
1.50

 
0.09

 
0.12

 
0.11

 
1.82

Effective tax rate
25.4
%
 

 

 

 
27.5
%
 
 
 
 
 
 
 
 
 
 
Three months ended October 1, 2016
 
Reported
GAAP
measure
 
Intangible
amortization
expense
 
Restructuring
& Integration
charges
 
Other
 
Non-GAAP
measure
Operating income
198,684


13,893


24,267


—


236,844

Income before income taxes
162,766


13,893


24,267


—


200,926

Provision for income taxes
44,931


4,959


7,439


—


57,329

Consolidated net income
117,835


8,934


16,828


—


143,597

Noncontrolling interests
108


347


—


—


455

Net income attributable to shareholders
$
117,727


8,587


16,828


—


143,142

Net income per diluted share**
1.28


0.09


0.18


—


1.56

Effective tax rate
27.6
%







28.5
%
 
 
 
 
 
 
 
 
 
 
Nine months ended September 30, 2017
 
Reported
GAAP
measure
 
Intangible
amortization
expense
 
Restructuring
& Integration
charges
 
Other*
 
Non-GAAP
measure
Operating income
$
657,536

 
37,909

 
55,817

 
—

 
751,262

Income before income taxes
466,427

 
37,909

 
55,817

 
73,795

 
633,948

Provision for income taxes
114,998

 
13,423

 
17,892

 
28,466

 
174,779

Consolidated net income
351,429

 
24,486

 
37,925

 
45,329

 
459,169

Noncontrolling interests
3,352

 
554

 
—

 
—

 
3,906

Net income attributable to shareholders
$
348,077

 
23,932

 
37,925

 
45,329

 
455,263

Net income per diluted share
3.87

 
0.27

 
0.42

 
0.50

 
5.06

Effective tax rate
24.7
%
 
 
 
 
 
 
 
27.6
%
 
 
 
 
 
 
 
 
 
 
Nine months ended October 1, 2016
 
Reported
GAAP
measure
 
Intangible
amortization
expense
 
Restructuring
& Integration
charges
 
Other
 
Non-GAAP
measure
Operating income
$
603,640

 
41,252

 
61,161

 
—

 
706,053

Income before income taxes
497,206

 
41,252

 
61,161

 
—

 
599,619

Provision for income taxes
137,441

 
12,357

 
19,242

 
—

 
169,040

Consolidated net income
359,765

 
28,895

 
41,919

 
—

 
430,579

Noncontrolling interests
1,533

 
940

 
—

 
—

 
2,473

Net income attributable to shareholders
$
358,232

 
27,955

 
41,919

 
—

 
428,106

Net income per diluted share**
3.87

 
0.30

 
0.45

 
—

 
4.63

Effective tax rate
27.6
%
 
 
 
 
 
 
 
28.2
%
 
 
 
 
 
 
 
 
 
 
* Other includes loss on extinguishment of debt and loss on investment.
**The sum of the components for diluted EPS, as adjusted may not agree to totals, as presented, due to rounding.

arrowlogo.jpg
 
 


ARROW ELECTRONICS, INC.
SEGMENT INFORMATION
(In thousands)
(Unaudited)
 
 
 
 
 
Quarter Ended
 
Nine Months Ended
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Sales:
 
 
 
 
 
 
 
Global components
$
4,864,361

 
$
3,904,447

 
$
13,385,514

 
$
11,413,348

Global ECS
2,089,379

 
2,031,645

 
5,793,124

 
5,969,022

Consolidated
$
6,953,740

 
$
5,936,092

 
$
19,178,638

 
$
17,382,370

Operating income (loss):
 
 
 
 
 
 
 
Global components
$
212,993

 
$
175,507

 
$
583,690

 
$
524,662

Global ECS
94,797

 
96,181

 
282,379

 
283,792

Corporate (a)
(71,798
)
 
(73,004
)
 
(208,533
)
 
(204,814
)
Consolidated
$
235,992

 
$
198,684

 
$
657,536

 
$
603,640


(a)
Includes restructuring, integration, and other charges of $15.9 million and $55.8 million for the third quarter and first nine months of 2017, and $24.3 million and $61.2 million for the third quarter and first nine months of 2016, respectively.

NON-GAAP SEGMENT RECONCILIATION
 
 
 
 
 
Quarter Ended
 
Nine Months Ended
 
September 30, 2017
 
October 1, 2016
 
September 30, 2017
 
October 1, 2016
Global components operating income, as reported
$
212,993

 
$
175,507

 
$
583,690

 
$
524,662

Intangible assets amortization expense
6,984

 
7,679

 
21,210

 
24,124

Global components operating income, as adjusted
$
219,977

 
$
183,186

 
$
604,900

 
$
548,786

Global ECS operating income, as reported
$
94,797

 
$
96,181

 
$
282,379

 
$
283,792

Intangible assets amortization expense
5,661

 
6,214

 
16,699

 
17,128

Global ECS operating income, as adjusted
$
100,458

 
$
102,395

 
$
299,078

 
$
300,920





Contact:            Steven O’Brien,
Vice President, Investor Relations
303-824-4544




Media Contact:        John Hourigan,
Vice President, Global Communications
303-824-4586


arrowlogo.jpg
 
 

1 investor.arrow.com Third Quarter 2017 CFO Commentary As reflected in our earnings release, there are a number of items that impact the comparability of our results with those in the trailing quarter and prior quarter of last year. The discussion of our results may exclude these items to give you a better sense of our operating results. As always, the operating information we provide to you should be used as a complement to GAAP numbers. For a complete reconciliation between our GAAP and non-GAAP results, please refer to our earnings release and the earnings reconciliation found at the end of this document. The following reported and adjusted information included in this CFO commentary is unaudited and should be read in conjunction with the company’s Form 10-Q for the quarterly period ended September 30, 2017, and the Annual Report on form 10-K as filed with the Securities and Exchange Commission. Third-quarter 2017 sales increased 17% year over year.

 
Third-Quarter 2017 CFO Commentary 2 investor.arrow.com Third-Quarter Summary We delivered record third-quarter sales, gross profit, and earnings per share. Third-quarter sales were above the high end of our expectation. Third-quarter operating expenses were well-managed and aligned to our business mix. Third-quarter gross profit, operating income, and earnings per share year-over- year growth accelerated compared to the first and second quarters of 2017. Global components achieved record third-quarter sales that exceeded our expectation. Third-quarter global component sales increased 25% year over year. Americas sales increased 24% year over year with growth from our core distribution business, digital platform, and sustainable technology solutions. Asia sales increased 24% year over year driven by our investments in sales and engineering resources. Europe sales increased 25% year over year and increased 19% year over year adjusted for changes in foreign currencies, the 18th straight quarter of adjusted year-over-year growth. Global components' operating income increased 21% year over year and non-GAAP operating income increased 20% year over year. Third-quarter enterprise computing solutions sales increased 3% year over year and were toward the higher end of our expectation. Europe sales increased 16% year over year and increased 11% year over year adjusted for changes in foreign currencies. Americas sales decreased 2% year over year. Billings grew in all regions led by software, including cloud, and industry- standard servers. Third-quarter enterprise computing solutions operating income decreased 1% year over year and non-GAAP operating income decreased 2% year over year. We delivered record third- quarter sales, gross profit, and earnings per share.

 
Third-Quarter 2017 CFO Commentary 3 investor.arrow.com P&L Highlights* Q3 2017 Y/Y Change Y/Y Change Adjusted for Acquisitions & Currency Q/Q Change Sales $6,954 17% 16% 8% Gross Profit Margin 12.1% -90 bps -100 bps -60 bps Operating Income $236 19% 17% 3% Operating Margin 3.4% 10 bps Flat -20 bps Non-GAAP Operating Income $265 12% 10% (1)% Non-GAAP Operating Margin 3.8% -20 bps -20 bps -30 bps Net Income $135 14% 12% 35% Diluted EPS $1.50 17% 15% 35% Non-GAAP Net Income $163 14% 12% 2% Non-GAAP Diluted EPS $1.82 17% 15% 2% Consolidated Overview Third Quarter 2017 $ in millions, except per share data; may reflect rounding • Consolidated sales were $6.95 billion – Above the high end of our prior expectation of $6.325-$6.725 billion • Consolidated gross profit margin was 12.1% – Decreased 90 basis points points year over year due to global components business mix, principally in the Americas and Europe – Decreased 60 basis points quarter over quarter due to mix across the businesses • Operating income margin was 3.4% and non-GAAP operating income margin was 3.8% – Operating expenses as a percentage of sales were 8.5%, down 80 basis points year over year – Non-GAAP operating expenses as a percentage of sales were 8.3%, down 70 basis points year over year – The decline in operating expense as a percentage of sales reflects the operational efficiencies we achieved to align our costs to our business mix • Interest and other expense, net was $40 million – Increased $3 million year over year due to higher debt balances and higher interest rates on floating- rate debt

 
Third-Quarter 2017 CFO Commentary 4 investor.arrow.com • Effective tax rate for the quarter was 25.4%, and non- GAAP effective tax rate was 27.5% – Non-GAAP effective tax rate was below the midpoint of our longer term range of 27-29% • Diluted shares outstanding were 89.5 million – Slightly above our prior expectation of 89 million • Diluted earnings per share were $1.50 – In line with our prior expectation of $1.49 - 1.61 – Included a $0.11 charge for loss on investment and for extinguishment of debt • Non-GAAP diluted earnings per share were $1.82 – Toward the higher end of our prior expectation of $1.74 - 1.86 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.

 
Third-Quarter 2017 CFO Commentary 5 investor.arrow.com Components Global • Sales increased 25% year over year – Increased 23% year over year adjusted for changes in foreign currencies • Lead times are in line with historical norms • Backlog increased significantly year over year • Book-to-bill was 1.07, up from 1.04 in the third quarter of 2016 • Operating margin of 4.4% decreased 10 basis points year over year • Non-GAAP operating margin of 4.5% decreased 20 basis points year over year – The operating margin decline was principally attributable to business mix in the Americas region • Return on working capital decreased 60 basis points year over year due to investments in inventory to support growth and new supplier engagements, and collections timing on rapidly growing sales Global components posted record third- quarter sales and operating income. Non-GAAP Operating Income ($ in millions)

 
Third-Quarter 2017 CFO Commentary 6 investor.arrow.com Components Americas • Sales increased 24% year over year – Record third-quarter sales – Strong growth in core components distribution due to new and expanded supplier agreements – Strong growth in digital platform and sustainable technology solutions – Strong growth in the aerospace & defense, consumer, communications, and alternative energy verticals year over year – Growth in the industrial and medical devices verticals and from large supply chain customers Americas components sales increased 24% year over year. Sales ($ in millions)

 
Third-Quarter 2017 CFO Commentary 7 investor.arrow.com Components Europe • Sales increased 25% year over year – Sales increased 19% year over year adjusted for changes in foreign currencies – Record third-quarter sales – Strong growth in the aerospace and defense, lighting, and transportation verticals year over year Europe components sales increased 25% year over year. Sales ($ in millions)

 
Third-Quarter 2017 CFO Commentary 8 investor.arrow.com Components Asia • Sales increased 24% year over year – Record third-quarter sales – Strong growth in the IoT and transportation verticals year over year Asia components sales increased 24% year over year. Sales ($ in millions)

 
Third-Quarter 2017 CFO Commentary 9 investor.arrow.com Enterprise Computing Solutions Global • Sales increased 3% year over year – Sales increased 1% year over year adjusted for changes in foreign currencies • Billings increased year over year adjusted for changes in foreign currencies • Operating margin of 4.5% decreased 20 basis points year over year • Non-GAAP operating margin of 4.8% decreased 20 basis points year over year • Return on working capital increased year over year for the 16th consecutive quarter Enterprise computing solutions posted record third-quarter sales. Non-GAAP Operating Income ($ in millions)

 
Third-Quarter 2017 CFO Commentary 10 investor.arrow.com Enterprise Computing Solutions Americas • Sales decreased 2% year over year – Billings increased year over year – Strong growth in industry-standard servers – Growth in infrastructure software across the portfolio – Storage, networking and proprietary servers decreased year over year ECS Americas industry- standard servers and infrastructure software increased year over year. Sales ($ in millions)

 
Third-Quarter 2017 CFO Commentary 11 investor.arrow.com Enterprise Computing Solutions Europe • Sales increased 16% year over year – Sales increased 11% year over year adjusted for changes in foreign currencies – Record third-quarter sales – Strong growth in industry standard servers and in infrastructure software across the portfolio adjusted for changes in foreign currencies – Growth in storage and proprietary servers year over year adjusted for changes in foreign currencies – Networking declined year over year – Operating income increased year over year ECS Europe posted record third-quarter sales. Sales ($ in millions)

 
Third-Quarter 2017 CFO Commentary 12 investor.arrow.com Cash Flow from Operations Cash flow from operating activities was $135 million in the quarter. Working Capital Working capital to sales was 16.0% in the quarter, up 10 basis points year over year. Return on working capital was 23.8% in the quarter, down 130 basis points year over year. Return on Invested Capital Return on invested capital was 10.1% in the quarter, up 30 basis points year over year, and ahead of our weighted average cost of capital. Share Buyback We repurchased approximately $0.3 million shares of our stock for $25 million. Total cash returned to shareholders over the last 12 months was approximately $185 million. Debt and Liquidity Net-debt-to-last-12-months EBITDA ratio is approximately 2.3x. Total liquidity of $2.9 billion when including cash of $584 million. We repurchased approximately $25 million of our stock in the third quarter.

 
Third-Quarter 2017 CFO Commentary 13 investor.arrow.com Arrow Electronics Outlook Guidance We are expecting the average USD-to-Euro exchange rate for the fourth quarter of 2017 to be $1.18 to €1 compared with $1.08 to €1 in the fourth quarter of 2016. We are expecting interest expense will total approximately $44 million. Fourth-Quarter 2017 Guidance Consolidated Sales $7.2 billion to $7.6 billion Global Components $4.75 billion to $4.95 billion Global ECS $2.45 billion to $2.65 billion Diluted Earnings Per Share1,2 $1.86 to 2.02 Non-GAAP Diluted Earnings Per Share1 $2.21 to 2.37 1 Assumes average diluted shares outstanding of 89 million, an average tax rate of 27 to 29%. 2 Includes an approximately $11 million or $0.12 per share post-tax pension settlement expense.

 
Third-Quarter 2017 CFO Commentary 14 investor.arrow.com Risk Factors The discussion of the company’s business and operations should be read together with the risk factors contained in Item 1A of its 2016 Annual Report on Form 10-K, filed with the Securities and Exchange Commission, which describe various risks and uncertainties to which the company is or may become subject. If any of the described events occur, the company’s business, results of operations, financial condition, liquidity, or access to the capital markets could be materially adversely affected. 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, 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, 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, 2016.

 
Third-Quarter 2017 CFO Commentary 15 investor.arrow.com Certain Non-GAAP Financial Information The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company’s operating performance. 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, income, or expense on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company’s operating results for businesses acquired, including the amortization expense related to acquired intangible assets, 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 to exclude identifiable intangible amortization, restructuring, integration, and other charges, and 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), and financing activities. A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables herein. 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, operating income, net income attributable to shareholders 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.

 
Third-Quarter 2017 CFO Commentary 16 investor.arrow.com Three months ended September 30, 2017 Reported GAAP measure Intangible amortization expense Restructuring & Integration charges Other* Non-GAAP measure Operating income $ 235,992 $ 12,645 $ 15,896 $ — $ 264,533 Income before income taxes 181,674 12,645 15,896 15,786 226,001 Provision for income taxes 46,199 4,474 5,319 6,089 62,081 Consolidated net income 135,475 8,171 10,577 9,697 163,920 Noncontrolling interests 845 146 — — 991 Net income attributable to shareholders $ 134,630 $ 8,025 $ 10,577 $ 9,697 $ 162,929 Net income per diluted share 1.50 0.09 0.12 0.11 1.82 Effective tax rate 25.4 % 27.5 % Three months ended October 1, 2016 Reported GAAP measure Intangible amortization expense Restructuring & Integration charges Other Non-GAAP measure Operating income $ 198,684 $ 13,893 $ 24,267 $ — $ 236,844 Income before income taxes 162,766 13,893 24,267 — 200,926 Provision for income taxes 44,931 4,959 7,439 — 57,329 Consolidated net income 117,835 8,934 16,828 — 143,597 Noncontrolling interests 108 347 — — 455 Net income attributable to shareholders $ 117,727 $ 8,587 $ 16,828 $ — $ 143,142 Net income per diluted share** 1.28 0.09 0.18 — 1.56 Effective tax rate 27.6 % 28.5 % Three months ended July 1, 2017 Reported GAAP measure Intangible amortization expense Restructuring & Integration charges Other* Non-GAAP measure Operating income $ 229,822 $ 12,364 $ 24,416 $ — $ 266,602 Income before income taxes 130,179 12,364 24,416 58,009 224,968 Provision for income taxes 29,575 4,388 7,576 22,377 63,916 Consolidated net income 100,604 7,976 16,840 35,632 161,052 Noncontrolling interests 925 157 — — 1,082 Net income attributable to shareholders $ 99,679 $ 7,819 $ 16,840 $ 35,632 $ 159,970 Net income per diluted share** 1.11 0.09 0.19 0.40 1.78 Effective tax rate 22.7 % 28.4 % *Other includes loss on extinguishment of debt and loss on investment. **The sum of the components for diluted EPS, as adjusted, may not agree to totals, as presented, due to rounding. Earnings Reconciliation ($ in thousands, except per share data)

 

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