Form 8-K ARROW ELECTRONICS INC For: Oct 29
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): October 29, 2014
ARROW ELECTRONICS, INC.
(Exact Name of Registrant as Specified in Charter)
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NEW YORK
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1-4482
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11-1806155
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(State or Other Jurisdiction
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(Commission
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(IRS Employer
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of Incorporation)
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File Number)
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Identification No.)
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7459 SOUTH LIMA STREET, ENGLEWOOD, 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 (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17�CFR�230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17�CFR�20.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17�CFR�240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17�CFR�240.13e-4(c))
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ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 29, 2014, the Registrant issued a press release announcing its third quarter 2014 earnings.��A copy of the press release is attached hereto as an Exhibit (99.1).
On October 29, 2014, the Registrant also issued a press release containing a Third Quarter 2014 CFO commentary related to its third quarter 2014 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
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(c)
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EXHIBITS
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99.1 Earnings press release dated October 29, 2014.
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99.2 CFO commentary press release dated October 29, 2014.
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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.
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ARROW ELECTRONICS, INC.
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Date:��October 29, 2014
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By:��/s/ Peter S. Brown
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Name:��Peter S. Brown
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Title:��Senior Vice President
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EXHIBIT INDEX
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Exhibit
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Description
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99.1
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Earnings press release issued by Arrow Electronics, Inc., dated October 29, 2014.
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99.2
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CFO commentary press release issued by Arrow Electronics, Inc., dated October 29, 2014.
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Exhibit 99.1
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ARROW ELECTRONICS, INC.
7459 S. LIMA STREET
ENGLEWOOD, CO 80112
303-824-4000
ARROW ELECTRONICS REPORTS THIRD-QUARTER NON-GAAP EARNINGS PER SHARE OF $1.40
-- Third-Quarter Sales Grew 11% Over Prior Year --
-- Non-GAAP Diluted Earnings Per Share Advanced 19% Over Prior Year --
FOR IMMEDIATE RELEASE
ENGLEWOOD, Colo. -- October 29, 2014 -- Arrow Electronics, Inc. (NYSE: ARW) today reported third-quarter 2014 net income of $146.9 million, or $1.47 per share on a diluted basis, compared with net income of $96.8 million, or $.95 per share on a diluted basis in the third quarter of 2013.��Excluding certain items1 in the third quarters of both 2014 and 2013, net income would have been $140.2 million, or $1.40 per share on a diluted basis, in the third quarter of 2014 compared with net income of $119.9 million, or $1.18 per share on a diluted basis, in the third quarter of 2013.��Third-quarter sales of $5.61 billion increased 11 percent from sales of $5.05 billion in the prior year.��Sales, as adjusted, increased 6 percent year over year.
In the third quarter we again produced outstanding results and invested in our long-term strategic sales-related initiatives.��Earnings per share of $1.40 were above our expectations, with sales of $5.6 billion at the high end of our guidance.��Both of our global components and enterprise computing solutions segments delivered sales and operating income growth.��The stable, slow-growth demand environment for global components matched our expectations.��Our focus on the higher value portion of the datacenter has aligned our enterprise computing solutions business with the faster growth areas of IT spending, said Michael J. Long, chairman, president, and chief executive officer.
Global components third-quarter sales of $3.73 billion increased 8 percent year over year.��Sales, as adjusted, grew 5 percent year over year.��Americas components sales increased 2 percent year over year.��Europe components sales grew 4 percent year over year, and the region grew year over year for the sixth consecutive quarter on an as-adjusted basis.��Components sales in the Asia-Pacific region increased 18 percent year over year.
Global enterprise computing solutions third-quarter sales of $1.88 billion grew 19 percent year over year.��Sales, as adjusted, grew 7 percent year over year with growth in both Americas and Europe.��Both regions continued to experience very strong growth in software and services, while storage and networking also delivered growth.
Returns advanced over the prior year for the fourth consecutive quarter.��Cash flow from operations on a trailing 12-month basis was $431 million as we continue to exceed our cash flow target, 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 us with the opportunity to return approximately $50 million to shareholders through our stock repurchase program in the third quarter, approximately $55 million, thus far, in the fourth quarter, and approximately $230 million on a trailing 12-month basis.
NINE-MONTH RESULTS
Arrows net income for the first nine months of 2014 was $381.9 million, or $3.80 per share on a diluted basis, compared with net income of $264.6 million, or $2.53 per share on a diluted basis in the first nine months of 2013. Excluding certain items1 in both the first nine months of 2014 and 2013, net income would have been $408.6 million, or $4.06 per share on a diluted basis, in the first nine months of 2014 compared with net income of $347.0 million, or $3.32 per share on a diluted basis, in the first nine months of 2013. In the first nine months of 2014, sales of $16.4 billion increased 8 percent from sales of $15.2 billion in the first nine months of 2013. Sales in the first nine months of 2014, as adjusted, increased 2 percent year over year.
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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.
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GUIDANCE
As we look to the fourth quarter, order patterns are unchanged and the supply chain remains well managed.��We expect normal seasonality for our global components and enterprise computing solutions businesses.��We believe that total sales will be between $6.1 billion and $6.5 billion, with global components sales between $3.4 billion and $3.6 billion and global enterprise computing solutions sales between $2.7 billion and $2.9 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 $1.75 to $1.87 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 99 million, and the average USD to Euro exchange rate for the fourth quarter is 1.25 to 1.��At the midpoints of our fourth-quarter guidance ranges, full-year 2014 sales and earnings per share, on a diluted basis, excluding any charges would grow 6 percent and 17 percent, respectively, compared to full-year 2013, with returns increasing year over year, and cash flow from operations of approximately $450 million, said Mr. Reilly.
Please refer to the CFO commentary, which can be found at www.arrow.com/investor, as a supplement to the companys 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 58 countries.
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| Contact: | Steven OBrien |
| � | Director, Investor Relations |
| � | 303-824-4544 |
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Paul J. Reilly
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Executive Vice President, Finance and Operations, and
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Chief Financial Officer
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631-847-1872
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| Media Contact:� | John Hourigan |
| � | Vice President, Global Communications |
| � | 303-824-4586 |
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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 companys 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 companys Form 10-Q for the quarterly period ended September 27, 2014, as well as the companys Annual Report on Form 10-K for the year ended December 31, 2013.
Certain Non-GAAP Financial Information
In addition to disclosing financial results that are determined in accordance with accounting principles generally accepted in the United States ( GAAP ), the company also provides certain non-GAAP financial information relating to sales, operating income, net income attributable to shareholders, and net income per basic and diluted share. The company provides sales on a non-GAAP basis adjusted for the impact of changes in foreign currencies and the impact of acquisitions by adjusting the company's prior periods to include the sales of businesses acquired as if the acquisitions had occurred at the beginning of the period presented (referred to as "impact of acquisitions"). Operating income, net income attributable to shareholders, and net income per basic and diluted share are adjusted for certain charges, credits, gains, and losses that the company believes impact the comparability of its results of operations.��These charges, credits, gains, and losses arise out of the companys efficiency enhancement�initiatives, acquisitions (including intangible assets amortization expense), sale of investment, prepayment of debt, and adjustments related to certain tax matters.��A reconciliation of the companys 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 companys operating performance and underlying trends in the companys business because management considers these items referred to above to be outside the companys core operating results.��This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the companys financial and operating performance.��In addition, the companys 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.
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ARROW ELECTRONICS, INC.
�(In thousands except per share data)
(Unaudited)
NON-GAAP SALES RECONCILIATION
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Quarter Ended
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September 27,
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September 28,
2013
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% Change
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Consolidated sales, as reported
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� | $ | 5,613,216 | � | � | $ | 5,048,211 | � | � | � | 11.2 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | (2,798 | ) | � | � | � | � |
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Impact of acquisitions
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� | � | 14,748 | � | � | � | 273,612 | � | � | � | � | � |
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Consolidated sales, as adjusted
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� | $ | 5,627,964 | � | � | $ | 5,319,025 | � | � | � | 5.8 | % |
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Global components sales, as reported
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� | $ | 3,731,289 | � | � | $ | 3,467,285 | � | � | � | 7.6 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 2,784 | � | � | � | � | � |
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Impact of acquisitions
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� | � | 11,289 | � | � | � | 81,348 | � | � | � | � | � |
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Global components sales, as adjusted
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� | $ | 3,742,578 | � | � | $ | 3,551,417 | � | � | � | 5.4 | % |
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� | � | � | � | � | � | � | � | � | � | � | � |
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Europe components sales, as reported
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� | $ | 949,232 | � | � | $ | 915,086 | � | � | � | 3.7 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 3,074 | � | � | � | � | � |
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Impact of acquisitions
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� | � | - | � | � | � | 7,199 | � | � | � | � | � |
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Europe components sales, as adjusted
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� | $ | 949,232 | � | � | $ | 925,359 | � | � | � | 2.6 | % |
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Global ECS sales, as reported
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� | $ | 1,881,927 | � | � | $ | 1,580,926 | � | � | � | 19.0 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | (5,582 | ) | � | � | � | � |
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Impact of acquisitions
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� | � | 3,459 | � | � | � | 192,264 | � | � | � | � | � |
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Global ECS sales, as adjusted
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� | $ | 1,885,386 | � | � | $ | 1,767,608 | � | � | � | 6.7 | % |
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Europe ECS sales, as reported
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� | $ | 619,045 | � | � | $ | 440,065 | � | � | � | 40.7 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | (1,515 | ) | � | � | � | � |
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Impact of acquisitions
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� | � | - | � | � | � | 139,337 | � | � | � | � | � |
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Europe ECS sales, as adjusted
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� | $ | 619,045 | � | � | $ | 577,887 | � | � | � | 7.1 | % |
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Nine Months�Ended
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September 27,
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September 28,
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Consolidated sales, as reported
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� | $ | 16,371,795 | � | � | $ | 15,203,925 | � | � | � | 7.7 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 105,039 | � | � | � | � | � |
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Impact of acquisitions
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� | � | 98,790 | � | � | � | 868,818 | � | � | � | � | � |
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Consolidated sales, as adjusted
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� | $ | 16,470,585 | � | � | $ | 16,177,782 | � | � | � | 1.8 | % |
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Global components sales, as reported
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� | $ | 10,721,814 | � | � | $ | 10,058,555 | � | � | � | 6.6 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 73,098 | � | � | � | � | � |
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Impact of acquisitions
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� | � | 62,887 | � | � | � | 241,052 | � | � | � | � | � |
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Global components sales, as adjusted
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� | $ | 10,784,701 | � | � | $ | 10,372,705 | � | � | � | 4.0 | % |
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� | � | � | � | � | � | � | � | � | � | � | � |
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Europe components sales, as reported
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� | $ | 2,923,093 | � | � | $ | 2,703,471 | � | � | � | 8.1 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 78,761 | � | � | � | � | � |
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Impact of acquisitions
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� | � | - | � | � | � | 24,238 | � | � | � | � | � |
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Europe components sales, as adjusted
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� | $ | 2,923,093 | � | � | $ | 2,806,470 | � | � | � | 4.2 | % |
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Global ECS sales, as reported
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� | $ | 5,649,981 | � | � | $ | 5,145,370 | � | � | � | 9.8 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 31,941 | � | � | � | � | � |
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Impact of acquisitions
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� | � | 35,903 | � | � | � | 627,766 | � | � | � | � | � |
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Global ECS sales, as adjusted
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� | $ | 5,685,884 | � | � | $ | 5,805,077 | � | � | � | (2.1 | )% |
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Europe ECS sales, as reported
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� | $ | 2,061,057 | � | � | $ | 1,583,975 | � | � | � | 30.1 | % |
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Impact of changes in foreign currencies
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� | � | - | � | � | � | 50,450 | � | � | � | � | � |
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Impact of acquisitions
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� | � | - | � | � | � | 475,747 | � | � | � | � | � |
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Europe ECS sales, as adjusted
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� | $ | 2,061,057 | � | � | $ | 2,110,172 | � | � | � | (2.3 | )% |
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ARROW ELECTRONICS, INC.
�(In thousands except per share data)
(Unaudited)
NON-GAAP EARNINGS RECONCILIATION
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Quarter Ended
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Nine Months Ended
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September 27,
2014
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September 28,
2013
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September 27,
2014
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September 28,
2013
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Operating income, as reported
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� | $ | 199,816 | � | � | $ | 162,736 | � | � | $ | 585,825 | � | � | $ | 456,163 | � |
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Intangible assets amortization expense
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� | � | 11,108 | � | � | � | 8,936 | � | � | � | 32,925 | � | � | � | 26,762 | � |
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Restructuring, integration, and other charges
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� | � | 3,935 | � | � | � | 22,568 | � | � | � | 25,181 | � | � | � | 74,402 | � |
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Operating income, as adjusted
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� | $ | 214,859 | � | � | $ | 194,240 | � | � | $ | 643,931 | � | � | $ | 557,327 | � |
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� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
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Net income attributable to shareholders, as reported
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� | $ | 146,864 | � | � | $ | 96,779 | � | � | $ | 381,868 | � | � | $ | 264,589 | � |
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Intangible assets amortization expense
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� | � | 9,086 | � | � | � | 7,074 | � | � | � | 26,860 | � | � | � | 21,219 | � |
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Restructuring, integration, and other charges
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� | � | 2,556 | � | � | � | 16,077 | � | � | � | 18,102 | � | � | � | 52,260 | � |
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Gain on sale of investment
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� | � | (18,269 | ) | � | � | - | � | � | � | (18,269 | ) | � | � | - | � |
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Loss on prepayment of debt
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | 2,627 | � |
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Settlement of tax matters:
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� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
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Income taxes
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | 5,362 | � |
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Interest (net of taxes)
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | 939 | � |
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Net income attributable to shareholders, as adjusted
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� | $ | 140,237 | � | � | $ | 119,930 | � | � | $ | 408,561 | � | � | $ | 346,996 | � |
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� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
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Net income per basic share, as reported
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� | $ | 1.49 | � | � | $ | .96 | � | � | $ | 3.84 | � | � | $ | 2.56 | � |
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Intangible assets amortization expense
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� | � | .09 | � | � | � | .07 | � | � | � | .27 | � | � | � | .21 | � |
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Restructuring, integration, and other charges
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� | � | .03 | � | � | � | .16 | � | � | � | .18 | � | � | � | .51 | � |
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Gain on sale of investment
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� | � | (.19 | ) | � | � | - | � | � | � | (.18 | ) | � | � | - | � |
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Loss on prepayment of debt
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | .03 | � |
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Settlement of tax matters:
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� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
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Income taxes
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | .05 | � |
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Interest (net of taxes)
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� | � | - | � | � | � | - | � | � | � | - | � | � | � | .01 | � |
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Net income per basic share, as adjusted
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� | $ | 1.42 | � | � | $ | 1.19 | � | � | $ | 4.11 | � | � | $ | 3.36 | � |
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Net income per diluted share, as reported
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� | $ | 1.47 | � | � | $ | .95 | � | � | $ | 3.80 | � | � | $ | 2.53 | � |
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Intangible assets amortization expense
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� | � | .09 | � | � | � | .07 | � | � | � | .27 | � | � | � | .20 | � |
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Restructuring, integration, and other charges
|
� | � | .03 | � | � | � | .16 | � | � | � | .18 | � | � | � | .50 | � |
|
Gain on sale of investment
|
� | � | (.18 | ) | � | � | - | � | � | � | (.18 | ) | � | � | - | � |
|
Loss on prepayment of debt
|
� | � | - | � | � | � | - | � | � | � | - | � | � | � | .03 | � |
|
Settlement of tax matters:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Income taxes
|
� | � | - | � | � | � | - | � | � | � | - | � | � | � | .05 | � |
|
Interest (net of taxes)
|
� | � | - | � | � | � | - | � | � | � | - | � | � | � | .01 | � |
|
Net income per diluted share, as adjusted
|
� | $ | 1.40 | � | � | $ | 1.18 | � | � | $ | 4.06 | � | � | $ | 3.32 | � |
�
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
|
� |
Nine Months Ended
|
||||||||||||
| � | � |
September 27,
2014
|
� |
September 28,
2013
|
� |
September 27,
2014
|
� |
September 28,
2013
|
||||||||
|
Sales:
|
� | � | � | � | � | � | � | � | � | � | � | � | ||||
|
Global components
|
� | $ | 3,731,289 | � | � | $ | 3,467,285 | � | � | $ | 10,721,814 | � | � | $ | 10,058,555 | � |
|
Global ECS
|
� | � | 1,881,927 | � | � | � | 1,580,926 | � | � | � | 5,649,981 | � | � | � | 5,145,370 | � |
|
Consolidated
|
� | $ | 5,613,216 | � | � | $ | 5,048,211 | � | � | $ | 16,371,795 | � | � | $ | 15,203,925 | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Operating income (loss):
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Global components
|
� | $ | 179,451 | � | � | $ | 164,096 | � | � | $ | 500,239 | � | � | $ | 432,534 | � |
|
Global ECS
|
� | � | 69,172 | � | � | � | 59,757 | � | � | � | 229,320 | � | � | � | 202,070 | � |
|
Corporate (a)
|
� | � | (48,807 | ) | � | � | (61,117 | ) | � | � | (143,734 | ) | � | � | (178,441 | ) |
|
Consolidated
|
� | $ | 199,816 | � | � | $ | 162,736 | � | � | $ | 585,825 | � | � | $ | 456,163 | � |
�
|
(a)��
|
Includes restructuring, integration, and other charges of $3.9 million and $25.2 million for the third quarter and first nine months of 2014 and $22.6 million and $74.4 million for the third quarter and first nine months of 2013, respectively.
|
NON-GAAP�SEGMENT RECONCILIATION
| � | � |
Quarter Ended
|
� |
Nine Months Ended
|
||||||||||||
| � | � |
September 27,
2014
|
� |
September 28,
2013
|
� |
September 27,
2014
|
� |
September 28,
2013
|
||||||||
|
Global components operating income, as reported
|
� | $ | 179,451 | � | � | $ | 164,096 | � | � | $ | 500,239 | � | � | $ | 432,534 | � |
|
Intangible assets amortization expense
|
� | � | 5,493 | � | � | � | 4,993 | � | � | � | 16,499 | � | � | � | 14,948 | � |
|
Global components operating income, as adjusted
|
� | $ | 184,944 | � | � | $ | 169,089 | � | � | $ | 516,738 | � | � | $ | 447,482 | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Global ECS operating income, as reported
|
� | $ | 69,172 | � | � | $ | 59,757 | � | � | $ | 229,320 | � | � | $ | 202,070 | � |
|
Intangible assets amortization expense
|
� | � | 5,615 | � | � | � | 3,943 | � | � | � | 16,426 | � | � | � | 11,814 | � |
|
Global ECS operating income, as adjusted
|
� | $ | 74,787 | � | � | $ | 63,700 | � | � | $ | 245,746 | � | � | $ | 213,884 | � |
�
�
�
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
| � | � |
Quarter Ended
|
� |
Nine Months Ended
|
||||||||||||
| � | � |
September 27,
2014
|
� |
September 28,
2013
|
� |
September 27,
2014
|
� |
September 28,
2013
|
||||||||
| � | � | � | � | � | � | � | � | � | � | � | � | � | ||||
|
Sales
|
� | $ | 5,613,216 | � | � | $ | 5,048,211 | � | � | $ | 16,371,795 | � | � | $ | 15,203,925 | � |
|
Costs and expenses:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Cost of sales
|
� | � | 4,884,529 | � | � | � | 4,376,551 | � | � | � | 14,191,759 | � | � | � | 13,200,621 | � |
|
Selling, general, and administrative expenses
|
� | � | 485,864 | � | � | � | 453,920 | � | � | � | 1,453,675 | � | � | � | 1,376,199 | � |
|
Depreciation and amortization
|
� | � | 39,072 | � | � | � | 32,436 | � | � | � | 115,355 | � | � | � | 96,540 | � |
|
Restructuring, integration, and other charges
|
� | � | 3,935 | � | � | � | 22,568 | � | � | � | 25,181 | � | � | � | 74,402 | � |
| � | � | � | 5,413,400 | � | � | � | 4,885,475 | � | � | � | 15,785,970 | � | � | � | 14,747,762 | � |
|
Operating income
|
� | � | 199,816 | � | � | � | 162,736 | � | � | � | 585,825 | � | � | � | 456,163 | � |
|
Equity in earnings of affiliated companies
|
� | � | 2,192 | � | � | � | 1,884 | � | � | � | 4,790 | � | � | � | 5,227 | � |
|
Gain on sale of investment
|
� | � | 29,743 | � | � | � | - | � | � | � | 29,743 | � | � | � | - | � |
|
Loss on prepayment of debt
|
� | � | - | � | � | � | - | � | � | � | - | � | � | � | 4,277 | � |
|
Interest and other financing expense, net
|
� | � | 27,522 | � | � | � | 27,167 | � | � | � | 86,079 | � | � | � | 86,896 | � |
|
Income before income taxes
|
� | � | 204,229 | � | � | � | 137,453 | � | � | � | 534,279 | � | � | � | 370,217 | � |
|
Provision for income taxes
|
� | � | 57,377 | � | � | � | 40,490 | � | � | � | 152,175 | � | � | � | 105,260 | � |
|
Consolidated net income
|
� | � | 146,852 | � | � | � | 96,963 | � | � | � | 382,104 | � | � | � | 264,957 | � |
|
Noncontrolling interests
|
� | � | (12 | ) | � | � | 184 | � | � | � | 236 | � | � | � | 368 | � |
|
Net income attributable to shareholders
|
� | $ | 146,864 | � | � | $ | 96,779 | � | � | $ | 381,868 | � | � | $ | 264,589 | � |
|
Net income per share:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Basic
|
� | $ | 1.49 | � | � | $ | .96 | � | � | $ | 3.84 | � | � | $ | 2.56 | � |
|
Diluted
|
� | $ | 1.47 | � | � | $ | .95 | � | � | $ | 3.80 | � | � | $ | 2.53 | � |
|
Weighted average shares outstanding:
|
� | � | � | � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Basic
|
� | � | 98,631 | � | � | � | 100,750 | � | � | � | 99,336 | � | � | � | 103,269 | � |
|
Diluted
|
� | � | 99,866 | � | � | � | 101,669 | � | � | � | 100,609 | � | � | � | 104,426 | � |
�
�
�
�
�
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
| � | � |
September 27,
2014
|
� |
December 31,
2013
|
||||
| � | � |
(Unaudited)
|
� | � | � | |||
|
ASSETS
|
� | � | � | � | � | � | ||
|
Current assets:
|
� | � | � | � | � | � | ||
|
Cash and cash equivalents
|
� | $ | 258,233 | � | � | $ | 390,602 | � |
|
Accounts receivable, net
|
� | � | 5,060,959 | � | � | � | 5,769,759 | � |
|
Inventories
|
� | � | 2,242,774 | � | � | � | 2,167,287 | � |
|
Other current assets
|
� | � | 267,732 | � | � | � | 258,122 | � |
| � | � | � | � | � | � | � | � | � |
|
Total current assets
|
� | � | 7,829,698 | � | � | � | 8,585,770 | � |
| � | � | � | � | � | � | � | � | � |
|
Property, plant, and equipment, at cost:
|
� | � | � | � | � | � | � | � |
|
Land
|
� | � | 23,867 | � | � | � | 24,051 | � |
|
Buildings and improvements
|
� | � | 143,837 | � | � | � | 142,583 | � |
|
Machinery and equipment
|
� | � | 1,127,650 | � | � | � | 1,113,987 | � |
| � | � | � | 1,295,354 | � | � | � | 1,280,621 | � |
|
Less: Accumulated depreciation and amortization
|
� | � | (660,643 | ) | � | � | (648,232 | ) |
|
Property, plant, and equipment, net
|
� | � | 634,711 | � | � | � | 632,389 | � |
| � | � | � | � | � | � | � | � | � |
|
Investments in affiliated companies
|
� | � | 68,056 | � | � | � | 67,229 | � |
|
Intangible assets, net
|
� | � | 421,710 | � | � | � | 426,069 | � |
|
Cost in excess of net assets of companies acquired
|
� | � | 2,076,692 | � | � | � | 2,039,293 | � |
|
Other assets
|
� | � | 280,659 | � | � | � | 310,133 | � |
| � | � | � | � | � | � | � | � | � |
|
Total assets
|
� | $ | 11,311,526 | � | � | $ | 12,060,883 | � |
| � | � | � | � | � | � | � | � | � |
|
LIABILITIES AND EQUITY
|
� | � | � | � | � | � | � | � |
|
Current liabilities:
|
� | � | � | � | � | � | � | � |
|
Accounts payable
|
� | $ | 3,806,702 | � | � | $ | 4,503,200 | � |
|
Accrued expenses
|
� | � | 650,779 | � | � | � | 774,868 | � |
|
Short-term borrowings, including current portion of long-term debt
|
� | � | 17,473 | � | � | � | 23,878 | � |
| � | � | � | � | � | � | � | � | � |
|
Total current liabilities
|
� | � | 4,474,954 | � | � | � | 5,301,946 | � |
| � | � | � | � | � | � | � | � | � |
|
Long-term debt
|
� | � | 2,211,037 | � | � | � | 2,226,132 | � |
|
Other liabilities
|
� | � | 374,507 | � | � | � | 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
|
� | � | 1,076,124 | � | � | � | 1,071,075 | � |
|
Treasury stock (27,375 and 25,488 shares in 2014 and 2013, respectively), at cost
|
� | � | (1,055,827 | ) | � | � | (920,528 | ) |
|
Retained earnings
|
� | � | 4,060,577 | � | � | � | 3,678,709 | � |
|
Accumulated other comprehensive income
|
� | � | 39,898 | � | � | � | 225,552 | � |
| � | � | � | � | � | � | � | � | � |
|
Total shareholders' equity
|
� | � | 4,246,196 | � | � | � | 4,180,232 | � |
| � | � | � | � | � | � | � | � | � |
|
Noncontrolling interests
|
� | � | 4,832 | � | � | � | 4,596 | � |
| � | � | � | � | � | � | � | � | � |
|
Total equity
|
� | � | 4,251,028 | � | � | � | 4,184,828 | � |
| � | � | � | � | � | � | � | � | � |
|
Total liabilities and equity
|
� | $ | 11,311,526 | � | � | $ | 12,060,883 | � |
�
�
�
�
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| � | � |
Quarter Ended
|
||||||
| � | � |
September 27,
2014
|
� |
September 28,
2013
|
||||
|
Cash flows from operating activities:
|
� | � | � | � | � | � | ||
|
Consolidated net income
|
� | $ | 146,852 | � | � | $ | 96,963 | � |
|
Adjustments to reconcile consolidated net income to net cash provided by operations:
|
� | � | � | � | � | � | � | � |
|
Depreciation and amortization
|
� | � | 39,072 | � | � | � | 32,436 | � |
|
Amortization of stock-based compensation
|
� | � | 11,116 | � | � | � | 11,465 | � |
|
Equity in earnings of affiliated companies
|
� | � | (2,192 | ) | � | � | (1,884 | ) |
|
Deferred income taxes
|
� | � | (4,611 | )� | � | � | (4,237 | ) |
|
Restructuring, integration, and other charges
|
� | � | 2,556 | � | � | � | 16,077 | � |
|
Gain on sale of investment
|
� | � | (18,269 | )� | � | � | - | � |
|
Excess tax benefits from stock-based compensation arrangements
|
� | � | (729 | )� | � | � | (320 | )� |
|
Other
|
� | � | 657 | � | � | � | 559 | � |
|
Change in assets and liabilities, net of effects of acquired businesses:
|
� | � | � | � | � | � | � | � |
|
Accounts receivable
|
� | � | (41,481 | )� | � | � | 225,379 | � |
|
Inventories
|
� | � | 32,740 | � | � | � | (34,314 | )� |
|
Accounts payable
|
� | � | (222,128 | )� | � | � | (237,258 | )� |
|
Accrued expenses
|
� | � | (42,228 | )� | � | � | (30,161 | )� |
|
Other assets and liabilities
|
� | � | 31,421 | � | � | � | 6,427 | � |
| � | � | � | � | � | � | � | � | � |
|
Net cash provided by (used for) operating activities
|
� | � | (67,224 | )� | � | � | 81,132 | � |
| � | � | � | � | � | � | � | � | � |
|
Cash flows from investing activities:
|
� | � | � | � | � | � | � | � |
|
Cash consideration paid for acquired businesses
|
� | � | (69,298 | )� | � | � | (34,010 | )� |
|
Acquisition of property, plant, and equipment
|
� | � | (25,878 | )� | � | � | (31,904 | )� |
|
Proceeds from sale of investment
|
� | � | 40,542 | � | � | � | - | � |
| � | � | � | � | � | � | � | � | � |
|
Net cash used for investing activities
|
� | � | (54,634 | ) | � | � | (65,914 | ) |
| � | � | � | � | � | � | � | � | � |
|
Cash flows from financing activities:
|
� | � | � | � | � | � | � | � |
|
Change in short-term and other borrowings
|
� | � | 661 | � | � | � | 5,457 | � |
|
Proceeds from (repayment of) long-term bank borrowings, net
|
� | � | 109,800 | � | � | � | (157,600 | )� |
|
Proceeds from exercise of stock options
|
� | � | 2,692 | � | � | � | 18,073 | � |
|
Excess tax benefits from stock-based compensation arrangements
|
� | � | 729 | � | � | � | 320 | � |
|
Repurchases of common stock
|
� | � | (50,600 | )� | � | � | (303 | )� |
| � | � | � | � | � | � | � | � | � |
|
Net cash provided by (used for) financing activities
|
� | � | 63,282 | � | � | � | (134,053 | ) |
| � | � | � | � | � | � | � | � | � |
|
Effect of exchange rate changes on cash
|
� | � | 7,873 | � | � | � | 24,734 | � |
|
Net decrease in cash and cash equivalents
|
� | � | (50,703 | )� | � | � | (94,101 | )� |
|
Cash and cash equivalents at beginning of period
|
� | � | 308,936 | � | � | � | 345,891 | � |
|
Cash and cash equivalents at end of period
|
� | $ | 258,233 | � | � | $ | 251,790 | � |
�
�
�
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| � | � |
Nine Months Ended
|
||||||
| � | � |
September 27,
2014
|
� |
September 28,
2013
|
||||
|
Cash flows from operating activities:
|
� | � | � | � | � | � | ||
|
Consolidated net income
|
� | $ | 382,104 | � | � | $ | 264,957 | � |
|
Adjustments to reconcile consolidated net income to net cash provided by operations:
|
� | � | � | � | � | � | � | � |
|
Depreciation and amortization
|
� | � | 115,355 | � | � | � | 96,540 | � |
|
Amortization of stock-based compensation
|
� | � | 31,283 | � | � | � | 24,247 | � |
|
Equity in earnings of affiliated companies
|
� | � | (4,790 | ) | � | � | (5,227 | ) |
|
Deferred income taxes
|
� | � | 11,368 | � | � | � | 15,311 | � |
|
Restructuring, integration, and other charges
|
� | � | 18,102 | � | � | � | 52,260 | � |
|
Gain on sale of investment
|
� | � | (18,269 | ) | � | � | - | � |
|
Excess tax benefits from stock-based compensation arrangements
|
� | � | (6,977 | ) | � | � | (6,937 | ) |
|
Other
|
� | � | 2,029 | � | � | � | 2,809 | � |
|
Change in assets and liabilities, net of effects of acquired businesses:
|
� | � | � | � | � | � | � | � |
|
Accounts receivable
|
� | � | 556,445 | � | � | � | 386,542 | � |
|
Inventories
|
� | � | (97,929 | ) | � | � | (94,180 | ) |
|
Accounts payable
|
� | � | (632,191 | ) | � | � | (361,349 | ) |
|
Accrued expenses
|
� | � | (150,165 | ) | � | � | (204,013 | ) |
|
Other assets and liabilities
|
� | � | 9,883 | � | � | � | 64,685 | � |
| � | � | � | � | � | � | � | � | � |
|
Net cash provided by operating activities
|
� | � | 216,248 | � | � | � | 235,645 | � |
| � | � | � | � | � | � | � | � | � |
|
Cash flows from investing activities:
|
� | � | � | � | � | � | � | � |
|
Cash consideration paid for acquired businesses
|
� | � | (129,522 | ) | � | � | (43,392 | ) |
|
Acquisition of property, plant, and equipment
|
� | � | (87,881 | ) | � | � | (85,465 | ) |
|
Proceeds from sale of investment
|
� | � | 40,542 | � | � | � | - | � |
|
Other
|
� | � | - | � | � | � | (3,000 | ) |
| � | � | � | � | � | � | � | � | � |
|
Net cash used for investing activities
|
� | � | (176,861 | ) | � | � | (131,857 | ) |
| � | � | � | � | � | � | � | � | � |
|
Cash flows from financing activities:
|
� | � | � | � | � | � | � | � |
|
Change in short-term and other borrowings
|
� | � | (9,243 | ) | � | � | (22,282 | ) |
|
Repayment of long-term bank borrowings, net
|
� | � | (10,200 | ) | � | � | (242,900 | ) |
|
Net proceeds from note offering
|
� | � | - | � | � | � | 591,156 | � |
|
Redemption of senior notes
|
� | � | - | � | � | � | (338,184 | ) |
|
Proceeds from exercise of stock options
|
� | � | 21,013 | � | � | � | 30,368 | � |
|
Excess tax benefits from stock-based compensation arrangements
|
� | � | 6,977 | � | � | � | 6,937 | � |
|
Repurchases of common stock
|
� | � | (189,411 | ) | � | � | (312,613 | ) |
| � | � | � | � | � | � | � | � | � |
|
Net cash used for financing activities
|
� | � | (180,864 | ) | � | � | (287,518 | ) |
| � | � | � | � | � | � | � | � | � |
|
Effect of exchange rate changes on cash
|
� | � | 9,108 | � | � | � | 25,836 | � |
|
Net decrease in cash and cash equivalents
|
� | � | (132,369 | ) | � | � | (157,894 | ) |
|
Cash and cash equivalents at beginning of period
|
� | � | 390,602 | � | � | � | 409,684 | � |
|
Cash and cash equivalents at end of period
|
� | $ | 258,233 | � | � | $ | 251,790 | � |
�
Exhibit 99.2
�
Third-Quarter 2014 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 the third quarter of last year.��Any discussion of our results will 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 third quarter as reported and adjusted information included in this CFO commentary is unaudited and should be read in conjunction with the Form 10-Q for the quarterly periods ended March 29, 2014, June 28, 2014, and September 27, 2014, as well as the companys 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.
Third-Quarter Summary
�
We delivered on our financial targets again in the third quarter. We grew our global components business for the fifth straight quarter with performance that was near the high end of our expectations. Our enterprise computing solutions also performed at the high end of our expectations.
�
1
�
�
Our consolidated sales were $5.6 billion and non-GAAP diluted earnings per share were $1.40. Revenue was at the high end of our guidance range and EPS was above the high end of our guidance range and an all-time record for the third quarter. Operating income and diluted earnings per share advanced 11 percent and 19 percent, respectively, year over year. Returns advanced again year over year for the fourth straight quarter.
Our global components sales of $3.7 billion advanced 8 percent year over year, highlighted by robust, double-digit growth in Asia, a sixth consecutive quarter of year-over-year growth in Europe, and Americas growth that was ahead of normal seasonality. Operating income grew 9 percent year-over-year, the fifth straight quarter of strong operating income growth. Global components operating margins have increased five quarters in a row on a year-over-year basis.
�
Enterprise computing solutions sales grew 19 percent year over year and operating income grew 17 percent year over year. Both regions performed well and both posted robust software and services sales growth. Storage, networking, and industry standard servers also grew at healthy rates this quarter.
�
�
�
2
�
�
Consolidated Overview Third Quarter
|
P&L Highlights*
|
Q3 2014
|
Y/Y
Change
|
Y/Y Change
Adjusted for
Acquisitions &
Currency
|
Q/Q
Change
|
|
Sales
|
$5,613
|
+11%
|
+6%
|
-1%
|
|
Gross Profit Margin
|
13.0%
|
-30bps
|
-50bps
|
-20bps
|
|
Operating Expense/Sales
|
9.2%
|
-30bps
|
-50bps
|
flat
|
|
Operating Income
|
$215
|
+11%
|
+7%
|
-6%
|
|
Operating Margin
|
3.8%
|
flat
|
+10bps
|
-20bps
|
|
Net Income
|
$140
|
+17%
|
+14%
|
-3%
|
|
Diluted EPS
|
$1.40
|
+19%
|
+15%
|
-2%
|
* $ in millions, except per share data, may reflect rounding
|
�
|
Third-quarter sales were $5.6 billion
|
|
o� ��
|
Increased 11% year over year and decreased 1% sequentially
|
|
o� ��
|
Adjusted for the impact of acquisitions and changes in foreign currencies, sales increased 6% year over year
|
|
�
|
Consolidated gross profit margin was 13.0%
|
|
o� ��
|
Decreased 30 basis points year over year, principally due to a greater contribution from enterprise computing solutions
|
|
��
|
Decreased 20 basis points sequentially due principally to a lower mix of Europe business and a higher mix of Asia business within global components
|
|
�
|
Operating expenses as a percentage of sales were 9.2%
|
|
o� ��
|
Decreased 30 basis points year over year and were flat sequentially
|
|
��
|
On an absolute dollar basis, operating expenses increased 8% year over year
|
|
��
|
Adjusted for the impact of acquisitions and changes in foreign currencies, operating expenses were flat year over year, and were 50 basis points lower year over year as a percentage of sales, driven by a greater contribution from enterprise computing solutions
|
|
�
|
Operating income was $215 million
|
|
o� ��
|
Increased 11% year over year as reported
|
|
o� ��
|
Increased 7% year over year as adjusted for the impact of acquisitions and changes in foreign currencies
|
|
�
|
Operating income as a percentage of sales was 3.8%
|
|
o� ��
|
Operating income as a percentage of sales was flat year over year
|
�
�
3
�
�
|
�
|
Effective tax rate for the quarter was 26.0%
|
|
�
|
Net income was $140 million
|
|
o� ��
|
Increased $20 million year over year
|
|
�
|
Earnings per share were $1.42 and $1.40 on a basic and diluted basis, respectively
|
|
o� ��
|
Diluted EPS increased 19% year over year
|
�
�
�
4
�
�
Global Components
�
Sales ($ in millions)
|
�
|
Sales increased 8% year over year and 5% sequentially
|
|
�
|
Leading indicators, including lead times and cancellation rates, are in line with historical norms
|
|
�
|
Book-to-bill of 0.97 was at a normal seasonal level for a third quarter
|
|
�
|
Gross profit dollars increased 6% year over year and were up 2% sequentially
|
|
o�� �
|
Sales growth and an improvement in Americas gross margin drove the improvement year over year
|
|
�
|
Gross margins decreased 20 basis points year over year and decreased 30 basis points sequentially with both principally due to a lower mix from Europe and a higher mix from Asia
|
|
�
|
Operating margin of 5.0%
|
|
o� ��
|
Increased 10 basis points year over year, as improvement in Europe was offset, in part, by greater mix from Asia
|
|
�
|
Return on working capital increased 150 basis points year over year, driven by higher operating income, and working capital as a percentage of sales declined 60 basis points year over year
|
�
5
�
�
Americas Components Region
�
Sales ($ in millions)
|
�
|
Sales increased 2% year over year and 3% sequentially
|
|
o�� �
|
Good growth in the alternative energy, transportation, and lighting verticals year-over-year
|
|
o����
|
Sequential sales were at the high end of seasonality
|
|
�
|
Looking ahead to the fourth quarter, we expect sales in our core Americas components business to be in line with seasonality
|
�
6
�
Europe Components Region
�
�
Sales ($ in millions)
|
�
|
Sales increased 4% year over year and decreased 4% sequentially
|
|
o�� �
|
Adjusted for the impact of acquisitions and changes in foreign currencies, sales increased 3% year over year
|
|
o����
|
Good growth in the transportation and aerospace & defense verticals year over year
|
|
o����
|
Sequential sales were in line with seasonality
|
|
�
|
Looking ahead to the fourth quarter, we expect sales in our core European components business to be in line with seasonality
|
�
7
�
Asia Pacific Components Region
�
�
Sales ($ in millions)
�
|
�
|
Sales increased 18% year over year and 14% sequentially
|
|
o����
|
Robust growth in the transportation, wireless, and industrial power verticals and good growth in the lighting vertical year over year
|
|
o����
|
Sequential sales above traditional seasonality
|
|
�
|
Looking ahead to the fourth quarter, we expect sales in our core Asia-Pacific components business to be below seasonality
|
�
8
�
Global Enterprise Computing Solutions
�
�
Sales ($ in millions)
�
|
�
|
Sales increased 19% year over year and declined 11% sequentially
|
|
�
|
Gross margin was down 40 basis points year over year due to customer mix
|
|
�
|
Operating margin of 4.0%
|
|
o�� �
|
Flat year over year
|
|
o����
|
Operating margin adjusted for acquisitions and foreign currencies was up 20 basis points year over year
|
|
o����
|
Operating income increased 17% year over year
|
|
�
|
Return on working capital continues to excel, increasing year over year for the fifth consecutive quarter
|
�
9
�
�
ECS America
�
�
Sales ($ in millions)
|
�
|
Sales increased 11% year over year and declined 5% sequentially
|
|
o����
|
Very strong growth in software and services
|
|
o����
|
Growth in storage and networking
|
|
o����
|
Growth in industry-standard servers was offset by decline in proprietary servers
|
|
�
|
Looking ahead to the fourth quarter, we expect sales in our core Americas value-added computing solutions business to be toward the higher end of seasonality
|
�
10
�
�
ECS Europe
�
�
Sales ($ in millions)
�
|
�
|
Sales increased 41% year over year and declined 20% sequentially
|
|
o����
|
Adjusted for the impact of acquisitions and changes in foreign currencies, sales increased 7% year over year
|
|
o����
|
Very strong growth in software and services
|
|
o����
|
Growth in storage, networking, industry-standard, and proprietary servers
|
|
�
|
Looking ahead to the fourth quarter, we expect sales in our core European value-added computing solutions business to be toward the lower end of seasonality
|
�
11
�
�
Cash Flow and Balance Sheet Highlights
�
|
�
|
Cash Flow from Operations
|
Cash from operating activities in the third quarter was a use of $67 million. Cash flow from operating activities was $431 million on a trailing 12-month basis.��We converted more than 83% of GAAP net income to cash over the last 12 months, well in excess of our target.
|
�
|
Working Capital
|
Working capital to sales improved to 15.6%.��Return on working capital advanced to 24.6%.
|
�
|
Return on Invested Capital
|
Return on invested capital was 10.2%, an increase over the prior year, and ahead of our weighted average cost of capital.
|
�
|
Share Buyback
|
We repurchased $50 million of our stock in the third quarter, and $55 million to date in the fourth quarter, bringing our total cash returned to shareholders over the last�12 months to approximately $230 million.
�
|
�
|
Debt and Liquidity
|
Our balance sheet and capital structure remain very strong with conservative debt levels and a net debt to last�12 months EBITDA ratio of approximately 2.0x.��Our total liquidity is $2.7 billion when including our cash of $258 million.
|
Fourth-Quarter 2014 Guidance
|
� |
|
Consolidated Sales
|
$6.1 billion to $6.5 billion
|
|
Global Components
|
$3.4 billion to $3.6 billion
|
|
Global ECS
|
$2.7 billion to $2.9 billion
|
| � | � |
|
Diluted Earnings per Share*
|
$1.75 to $1.87
|
�
* Fourth-quarter guidance assumes average diluted shares outstanding of 99 million.
�
12
�
Arrow Electronics Revenue Seasonality*
|
Global
Components
|
NAC
|
EMEA ex FX
|
AAP
|
|
Q1
|
-7% to +1%
|
+9% to +17%
|
-10% to -2%
|
|
Q2
|
-1% to +7%
|
-5% to +3%
|
+9% to +17%
|
|
Q3
|
-6% to +2%
|
-3% to +5%
|
-4% to +4%
|
|
Q4
|
-3% to +5%
|
-13% to -5%
|
-4% to +4%
|
|
Global ECS
|
NA
|
EMEA ex FX
|
|
Q1
|
-27% to -19%
|
-34% to -26%
|
|
Q2
|
+15% to +23%
|
+3% to +11%
|
|
Q3
|
-15% to -7%
|
-25% to -17%
|
|
Q4
|
+31% to +39%
|
+75% to +83%
|
* Revenue seasonality based on historical sequential sales growth for our components and ECS businesses, updated 1/1/2014
�
13
�
�
Risk Factors
The discussion of the companys business and operations should be read together with the risk factors contained in Item 1A of its Form 10-Q for the quarterly period ended September 27, 2014, as well as its 2013 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 companys 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 CFO Commentary 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 companys 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 companys Form 10-Q for the quarterly period ended September 27, 2014, as well as the companys Annual Report on Form 10-K for the year ended December 31, 2013.
�
14
�
�
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, 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), sale of investment, and adjustments related to certain 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, 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 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.
�
15
�
�
Earnings Reconciliation
($ in thousands, except per share data)
| � | � | � | Q3 2014 | � | � | � | Q2 2014 | � | � | � | Q3 2013 | � |
|
Operating income, as Reported
|
� | $ | 199,816 | � | � | $ | 208,269 | � | � | $ | 162,736 | � |
|
Intangible assets amortization expense
|
� | � | 11,108 | � | � | � | 10,870 | � | � | � | 8,936 | � |
|
Restructuring, integration, and other charges
|
� | � | 3,935 | � | � | � | 9,632 | � | � | � | 22,568 | � |
|
Operating income, as Adjusted
|
� | $ | 214,859 | � | � | $ | 228,771 | � | � | $ | 194,240 | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Net income attributable to shareholders, as Reported
|
� | $ | 146,864 | � | � | $ | 127,884 | � | � | $ | 96,779 | � |
|
Intangible assets amortization expense
|
� | � | 9,086 | � | � | � | 8,867 | � | � | � | 7,074 | � |
|
Restructuring, integration, and other charges
|
� | � | 2,556 | � | � | � | 7,526 | � | � | � | 16,077 | � |
|
Gain on sale of investment
|
� | � | (18,269 | ) | � | � | -- | � | � | � | -- | � |
|
Net income attributable to shareholders, as Adjusted
|
� | $ | 140,237 | � | � | $ | 144,277 | � | � | $ | 119,930 | � |
| � | � | � | � | � | � | � | � | � | � | � | � | � |
|
Diluted EPS, as Reported
|
� | $ | 1.47 | � | � | $ | 1.27 | � | � | $ | .95 | � |
|
Intangible assets amortization expense
|
� | � | .09 | � | � | � | .09 | � | � | � | .07 | � |
|
Restructuring, integration, and other charges
|
� | � | .03 | � | � | � | .07 | � | � | � | .16 | � |
|
Gain on sale of investment
|
� | � | (.18 | ) | � | � | -- | � | � | � | -- | � |
|
Diluted EPS, as Adjusted
|
� | $ | 1.40 | � | � | $ | 1.43 | � | � | $ | 1.18 | � |
The sum of the components for diluted EPS, as Adjusted, may not agree to totals, as presented, due to rounding.
Earnings Reconciliation
References to restructuring and other charges refer to the following incremental charges taken in the periods indicated:
Q3-14 Intangible Assets Amortization Expense:��During the third quarter of 2014, the company recorded intangible assets amortization expense of $11.1 million ($9.1 million net of related taxes or $.09 per share on both a basic and diluted basis).
Q3-14 Restructuring, Integration, and Other Charges:�During the third quarter of 2014, the company recorded restructuring, integration, and other charges of $3.9 million ($2.6 million net of related taxes or $.03 per share on both a basic and diluted basis)
Q3-14 Gain on Sale of Investment:�During the third quarter of 2014, the company recorded a gain on sale of investment of $29.7 million ($18.3 million net of related taxes or $.19 and $.18 per share on a basic and diluted basis, respectively).
�
16
�
�
Q2-14 Intangible Assets Amortization Expense:��During the second quarter of 2014, the company recorded intangible assets amortization expense of $10.9 million ($8.9 million net of related taxes or $.09 per share on both a basic and diluted basis).
Q2-14 Restructuring, Integration, and Other Charges:�During the second quarter of 2014, the company recorded restructuring, integration, and other charges of $9.6 million ($7.5 million net of related taxes or $.08 and $.07 per share on a basic and diluted basis, respectively).
Q3-13 Intangible Assets Amortization Expense:��During the third quarter of 2013, the company recorded intangible assets amortization expense of $8.9 million ($7.1 million net of related taxes or $.07 per share on both a basic and diluted basis).
Q3-13 Restructuring, Integration, and Other Charges:�During the third quarter of 2013, the company recorded restructuring, integration, and other charges of $22.6 million ($16.1 million net of related taxes or $.16 per share on both a basic and diluted basis).
�
�
17