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): July 29, 2014


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.)


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):

[ ]
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 20.14a-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))


 
 
 
 
ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On July 29, 2014, the Registrant issued a press release announcing its second quarter 2014 earnings.  A copy of the press release is attached hereto as an Exhibit (99.1).

On July 29, 2014, the Registrant also issued a press release containing a Second Quarter 2014 CFO commentary related to its second 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

 
(c)
EXHIBITS
   
99.1 Earnings press release dated July 29, 2014.
     
   
99.2 CFO commentary press release dated July 29, 2014.




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:  July 29, 2014
By:
  
/s/ Peter S. Brown
 
Name:
  
Peter S. Brown
 
Title:
  
Senior Vice President




EXHIBIT INDEX

Exhibit
Description
   
99.1
Earnings press release issued by Arrow Electronics, Inc., dated July 29, 2014.
   
99.2
CFO commentary press release issued by Arrow Electronics, Inc., dated July 29, 2014.
 
a50913739ex99_1.htm
Exhibit 99.1
 
ARROW ELECTRONICS, INC.
7459 S. LIMA STREET
ENGLEWOOD, CO 80112
303-824-4000



ARROW ELECTRONICS REPORTS SECOND-QUARTER NON-GAAP EARNINGS PER SHARE OF $1.43
-- Margins Expand Over Prior Year --
-- Cash Flow from Operations of $159 Million --


FOR IMMEDIATE RELEASE

ENGLEWOOD, Colo. -- July 29, 2014 -- Arrow Electronics, Inc. (NYSE:ARW) today reported second-quarter 2014 net income of $127.9 million, or $1.27 per share on a diluted basis, compared with net income of $89.9 million, or $.86 per share on a diluted basis in the second quarter of 2013.  Excluding certain items1 in the second quarters of both 2014 and 2013, net income would have been $144.3 million, or $1.43 per share on a diluted basis, in the second quarter of 2014 compared with net income of $124.0 million, or $1.19 per share on a diluted basis, in the second quarter of 2013.  Second-quarter sales of $5.68 billion increased 7 percent from sales of $5.31 billion in the prior year.  Sales, as adjusted, increased 1 percent year over year.

“We delivered strong results in the second quarter as we continued to accomplish our strategic objectives.  Earnings per share of $1.43 and sales of $5.7 billion were above the midpoints of our guidance.  Global components, as well as the software and services portions of enterprise computing solutions, again delivered growth.  Business conditions for the hardware portion of enterprise computing solutions improved from the first quarter as we anticipated,” said Michael J. Long, chairman, president, and chief executive officer.

Global components second-quarter sales of $3.57 billion increased 5 percent year over year.  Sales in that segment, as adjusted, grew 2 percent year over year.  Americas components sales increased 2 percent year over year.  European components sales grew 9 percent year over year, or 3 percent as adjusted, marking the fifth consecutive quarter of year-over-year growth for the region on an as-adjusted basis.  Components sales in the Asia-Pacific region increased 5 percent year over year.

Global enterprise computing solutions second-quarter sales of $2.11 billion grew 10 percent year over year.  Sales in that segment, as adjusted, declined 1 percent year over year.  The Americas and Europe continued to experience growth in infrastructure, security and virtualization software product lines, offset by a decline in proprietary servers.

“With $159 million in cash flow from operations in the second quarter, we again meaningfully exceeded our cash flow target,” said Paul J. Reilly, executive vice president, finance and operations, and chief financial officer.  “The highly effective management of our balance sheet and related strong cash flow provided us with the opportunity to both deploy capital toward our strategic initiatives and return approximately $50 million to shareholders through our stock repurchase program.”

SIX-MONTH RESULTS

Arrow’s net income for the first six months of 2014 was $235.0 million, or $2.33 per share on a diluted basis, compared with net income of $167.8 million, or $1.58 per share on a diluted basis in the first six months of 2013. Excluding certain items1 in both the first six months of 2014 and 2013, net income would have been $268.3 million, or $2.66 per share on a diluted basis, in the first six months of 2014 compared with net income of $227.1 million, or $2.14 per share on a diluted basis, in the first six months of 2013. In the first six months of 2014, sales of $10.76 billion increased 6 percent from sales of $10.16 billion in the first six months of 2013.


1 A reconciliation of non-GAAP adjusted financial measures including sales, as adjusted, operating income, as adjusted, net income attributable to shareholders, as adjusted, and net income per share, as adjusted to GAAP financial measures is presented in the reconciliation tables included herein.

 
 
 
 
GUIDANCE

“As we look to the third quarter, we would expect market conditions for our global components and enterprise computing solutions businesses to remain consistent with the second quarter.  We believe that total sales will be between $5.25 billion and $5.65 billion, with global components sales between $3.55 billion and $3.75 billion and global enterprise computing solutions sales between $1.7 billion and $1.9 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 $1.26 to $1.38 per share.  Our guidance assumes an average tax rate in the range of 27 to 29 percent, and average diluted shares outstanding are expected to be 100 million,” said Mr. Reilly.

Please refer to the CFO commentary, which can be found at www.arrow.com/investor, as a supplement to the company’s earnings release.

Arrow Electronics (www.arrow.com) is a global provider of products, services and solutions to industrial and commercial users of electronic components and enterprise computing solutions.  Arrow serves as a supply channel partner for more than 100,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 460 locations in 58 countries.


# # #

Contact:
Steven O’Brien
 
Director, Investor Relations
 
303-824-4544
   
 
Paul J. Reilly
 
Executive Vice President, Finance and Operations, &
 
Chief Financial Officer
 
631-847-1872
   
Media Contact:
John Hourigan
 
Vice President, Global Communications
 
303-824-4586
 
 
 
 

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 Form 10-Q for the quarterly period ended June 28, 2014, as well as the company’s 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 company’s efficiency enhancement initiatives, acquisitions (including intangible assets amortization expense), prepayment of debt, and adjustments related to certain tax matters.  A reconciliation of the company’s non-GAAP financial information to GAAP is set forth in the tables below.

The company believes that such non-GAAP financial information is useful to investors to assist in assessing and understanding the company’s operating performance and underlying trends in the company’s business because management considers these items referred to above to be outside the company’s core operating results.  This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company’s financial and operating performance.  In addition, the company’s Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation.

The presentation of this additional non-GAAP financial information is not meant to be considered in isolation or as a substitute for, or alternative to, sales, operating income, net income and net income per basic and diluted share determined in accordance with GAAP. Analysis of results and outlook on a non-GAAP basis should be used as a complement to, and in conjunction with, data presented in accordance with GAAP.

 
 
 
 
ARROW ELECTRONICS, INC.
 (In thousands except per share data)
(Unaudited)

NON-GAAP SALES RECONCILIATION
 
    Quarter Ended     
   
June 28,
2014
    
June 29,
2013
     % Change
                   
Consolidated sales, as reported
   $ 5,676,539     $ 5,306,085       7.0 %
Impact of changes in foreign currencies
     -       62,739          
Impact of acquisitions
     -       263,707          
Consolidated sales, as adjusted
   $ 5,676,539     $ 5,632,531       .8 %
                         
Global components sales, as reported
   $ 3,569,344     $ 3,398,690       5.0 %
Impact of changes in foreign currencies
     -       41,407          
Impact of acquisitions
     -       55,169          
Global components sales, as adjusted
   $ 3,569,344     $ 3,495,266       2.1 %
 
                        
Europe components sales, as reported
   $ 984,927     $ 901,748       9.2 %
Impact of changes in foreign currencies
     -       43,290          
Impact of acquisitions
     -       8,443          
Europe components sales, as adjusted
   $ 984,927     $ 953,481       3.3 %
                         
Global ECS sales, as reported
   $ 2,107,195     $ 1,907,395       10.5 %
Impact of changes in foreign currencies
     -       21,332          
Impact of acquisitions
     -       208,538          
Global ECS sales, as adjusted
   $ 2,107,195     $ 2,137,265       (1.4 )%
   
 
 
    Six Months Ended    
    June 28,
2014
    
June 29,
2013 
     % Change
                         
Consolidated sales, as reported
   $ 10,758,579     $ 10,155,714       5.9 %
Impact of changes in foreign currencies
     -       107,836          
Impact of acquisitions
     -       521,972          
Consolidated sales, as adjusted
   $ 10,758,579     $ 10,785,522       (.3 )%
                         
Global components sales, as reported
   $ 6,990,525     $ 6,591,270       6.1 %
Impact of changes in foreign currencies
     -       70,314          
Impact of acquisitions
     -       111,744          
Global components sales, as adjusted
   $ 6,990,525     $ 6,773,328       3.2 %
 
                        
Europe components sales, as reported
   $ 1,973,860     $ 1,788,384       10.4 %
Impact of changes in foreign currencies
     -       75,687          
Impact of acquisitions
     -       17,039          
Europe components sales, as adjusted
   $ 1,973,860     $ 1,881,110       4.9 %
                         
Global ECS sales, as reported
   $ 3,768,054     $ 3,564,444       5.7 %
Impact of changes in foreign currencies
     -       37,522          
Impact of acquisitions
     -       410,228          
Global ECS sales, as adjusted
   $ 3,768,054     $ 4,012,194       (6.1 )%

 
 
 

ARROW ELECTRONICS, INC.
 (In thousands except per share data)
(Unaudited)
 
NON-GAAP EARNINGS RECONCILIATION

   
Quarter Ended
    
Six Months Ended
  
   
June 28,
2014
    
June 29,
2013
    
June 28,
2014
    
June 29,
2013
  
                         
Operating income, as reported
   $ 208,269     $ 155,875     $ 386,009     $ 293,427  
Intangible assets amortization expense
     10,870       8,869       21,817       17,826  
Restructuring, integration, and other charges
     9,632       30,224       21,246       51,834  
Operating income, as adjusted
   $ 228,771     $ 194,968     $ 429,072     $ 363,087  
 
                                
Net income attributable to shareholders, as reported
   $ 127,884     $ 89,935     $ 235,004     $ 167,810  
Intangible assets amortization expense
     8,867       7,029       17,774       14,145  
Restructuring, integration, and other charges
     7,526       20,688       15,546       36,183  
Loss on prepayment of debt
     -       -       -       2,627  
Settlement of tax matters
                                
Income taxes
     -       5,362       -       5,362  
Interest (net of taxes)
     -       939       -       939  
Net income attributable to shareholders, as adjusted
   $ 144,277     $ 123,953     $ 268,324     $ 227,066  
 
                                
Net income per basic share, as reported
   $ 1.29     $ .87     $ 2.36     $ 1.61  
Intangible assets amortization expense
     .09       .07       .18       .14  
Restructuring, integration, and other charges
     .08       .20       .16       .35  
Loss on prepayment of debt
     -       -       -       .03  
Settlement of tax matters
                                
Income taxes
     -       .05       -       .05  
Interest (net of taxes)
     -       .01       -       .01  
Net income per basic share, as adjusted
   $ 1.45     $ 1.20     $ 2.69     $ 2.17  
                                 
Net income per diluted share, as reported
   $ 1.27     $ .86     $ 2.33     $ 1.58  
Intangible assets amortization expense
     .09       .07       .18       .13  
Restructuring, integration, and other charges
     .07       .20       .15       .34  
Loss on prepayment of debt
     -       -       -       .02  
Settlement of tax matters
                                
Income taxes
     -       .05       -       .05  
Interest (net of taxes)
     -       .01       -       .01  
Net income per diluted share, as adjusted
   $ 1.43     $ 1.19     $ 2.66     $ 2.14  
 
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
    
Six Months Ended
  
   
June 28,
2014
    
June 29,
2013
    
June 28,
2014
    
June 29,
2013
  
Sales:
                        
Global components
   $ 3,569,344     $ 3,398,690     $ 6,990,525     $ 6,591,270  
Global ECS
     2,107,195       1,907,395       3,768,054       3,564,444  
Consolidated
   $ 5,676,539     $ 5,306,085     $ 10,758,579     $ 10,155,714  
                                 
Operating income (loss):
                                
Global components
   $ 159,642     $ 140,158     $ 320,788     $ 268,438  
Global ECS
     95,990       80,722       160,148       142,313  
Corporate (a)
     (47,363 )     (65,005 )     (94,927 )     (117,324 )
Consolidated
   $ 208,269     $ 155,875     $ 386,009     $ 293,427  


(a)
Includes restructuring, integration, and other charges of $9.6 million and $21.2 million for the second quarter and first six months of 2014 and $30.2 million and $51.8 million for the second quarter and first six months of 2013, respectively.


NON-GAAP SEGMENT RECONCILIATION

   
Quarter Ended
    
Six Months Ended
  
   
June 28,
2014
    
June 29,
2013
    
June 28,
2014
    
June 29,
2013
  
Global components operating income, as reported
   $ 159,642     $ 140,158     $ 320,788     $ 268,438  
Intangible assets amortization expense
     5,458       4,940       11,006       9,955  
Global components operating income, as adjusted
   $ 165,100     $ 145,098     $ 331,794     $ 278,393  
                                 
Global ECS operating income, as reported
   $ 95,990     $ 80,722     $ 160,148     $ 142,313  
Intangible assets amortization expense
     5,412       3,929       10,811       7,871  
Global ECS operating income, as adjusted
   $ 101,402     $ 84,651     $ 170,959     $ 150,184  

 
 
 

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share data)
(Unaudited)
 
   
Quarter Ended
    
Six Months Ended
  
   
June 28,
2014
    
June 29,
2013
    
June 28,
2014
    
June 29,
2013
  
                         
Sales
   $ 5,676,539     $ 5,306,085     $ 10,758,579     $ 10,155,714  
Costs and expenses:
                                
Cost of sales
     4,929,018       4,616,513       9,307,230       8,824,070  
Selling, general, and administrative expenses
     489,908       470,874       967,811       922,279  
Depreciation and amortization
     39,712       32,599       76,283       64,104  
Restructuring, integration, and other charges
     9,632       30,224       21,246       51,834  
      5,468,270       5,150,210       10,372,570       9,862,287  
Operating income
     208,269       155,875       386,009       293,427  
Equity in earnings of affiliated companies
     1,181       1,360       2,598       3,343  
Loss on prepayment of debt
     -       -       -       4,277  
Interest and other financing expense, net
     28,920       30,199       58,557       59,729  
Income before income taxes
     180,530       127,036       330,050       232,764  
Provision for income taxes
     52,470       37,000       94,798       64,770  
Consolidated net income
     128,060       90,036       235,252       167,994  
Noncontrolling interests
     176       101       248       184  
Net income attributable to shareholders
   $ 127,884     $ 89,935     $ 235,004     $ 167,810  
Net income per share:
                                
Basic
   $ 1.29     $ .87     $ 2.36     $ 1.61  
Diluted
   $ 1.27     $ .86     $ 2.33     $ 1.58  
Weighted-average shares outstanding:
                                
Basic
     99,449       103,225       99,695       104,542  
Diluted
     100,562       104,024       100,980       105,892  
 
 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except par value)
 
   
June 28,
2014
    
December 31,
2013
  
   
(Unaudited)
          
ASSETS
              
Current assets:
                
Cash and cash equivalents
  
$
308,936
    
$
390,602
  
Accounts receivable, net
    
5,137,798
      
5,769,759
  
Inventories
    
2,295,216
      
2,167,287
  
Other current assets
    
280,436
      
258,122
  
Total current assets
    
8,022,386
      
8,585,770
  
Property, plant, and equipment, at cost:
                
Land
    
24,023
      
24,051
  
Buildings and improvements
    
144,780
      
142,583
  
Machinery and equipment
    
1,163,463
      
1,113,987
  
     
1,332,266
      
1,280,621
  
Less: Accumulated depreciation and amortization
    
(690,835
)
    
(648,232
)
Property, plant, and equipment, net
    
641,431
      
632,389
  
                 
Investments in affiliated companies
    
68,410
      
67,229
  
Intangible assets, net
    
419,282
      
426,069
  
Cost in excess of net assets of companies acquired
    
2,081,930
      
2,039,293
  
Other assets
    
326,154
      
310,133
  
Total assets
  
$
11,559,593
    
$
12,060,883
  
                 
LIABILITIES AND EQUITY
                
Current liabilities:
                
Accounts payable
  
$
4,074,627
    
$
4,503,200
  
Accrued expenses
    
679,454
      
774,868
  
Short-term borrowings, including current portion of long-term debt
    
17,338
      
23,878
  
Total current liabilities
    
4,771,419
      
5,301,946
  
                 
Long-term debt
    
2,103,960
      
2,226,132
  
Other liabilities
    
376,069
      
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
    
1,065,657
      
1,071,075
  
Treasury stock (26,621 and 25,488 shares in 2014 and
2013, respectively), at cost
    
(1,009,351
)
    
(920,528
)
Retained earnings
    
3,913,713
      
3,678,709
  
Accumulated other comprehensive income
    
207,858
      
225,552
  
Total shareholders' equity
    
4,303,301
      
4,180,232
  
Noncontrolling interests
    
4,844
      
4,596
  
Total equity
    
4,308,145
      
4,184,828
  
Total liabilities and equity
  
$
11,559,593
    
$
12,060,883
  

 
 
 
 
ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
   
Quarter Ended
  
   
June 28,
2014
    
June 29,
2013
  
Cash flows from operating activities:
                
Consolidated net income
  
$
128,060
    
$
90,036
  
Adjustments to reconcile consolidated net income to net cash provided by operations:
                
Depreciation and amortization
    
39,712
      
32,599
  
Amortization of stock-based compensation
    
10,371
      
6,799
  
Equity in earnings of affiliated companies
    
(1,181
)
    
(1,360
)
Deferred income taxes
    
5,338
      
(36
)
Restructuring, integration, and other charges
    
7,526
      
20,688
  
Excess tax benefits from stock-based compensation arrangements
    
(386
)
    
(142
)
Other
    
(120
)
    
654
  
Change in assets and liabilities, net of effects of acquired businesses:
                
Accounts receivable
    
(306,793
)
    
(227,817
)
Inventories
    
(202,670
)
    
(34,489
)
Accounts payable
    
449,225
      
343,706
  
Accrued expenses
    
19,289
      
(415
)
Other assets and liabilities
    
11,064
      
103,694
  
Net cash provided by operating activities
    
159,435
      
333,917
  
                 
Cash flows from investing activities:
                
Acquisition of property, plant, and equipment
    
(29,160
)
    
(26,810
)
Net cash used for investing activities
    
(29,160
)
    
(26,810
)
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
    
(2,566
)
    
(13,397
)
Repayment of long-term bank borrowings, net
    
(35,000
)
    
(129,600
)
Proceeds from exercise of stock options
    
2,179
      
1,695
  
Excess tax benefits from stock-based compensation arrangements
    
386
      
142
  
Repurchases of common stock
    
(50,310
)
    
(198,806
)
Net cash used for financing activities
    
(85,311
)
    
(339,966
)
                 
Effect of exchange rate changes on cash
    
5,689
      
14,599
  
Net increase (decrease) in cash and cash equivalents
    
50,653
      
(18,260
)
Cash and cash equivalents at beginning of period
    
258,283
      
364,151
  
Cash and cash equivalents at end of period
  
$
308,936
    
$
345,891
  

 
 
 

ARROW ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
   
Six Months Ended
  
   
June 28,
2014
    
June 29,
2013
  
Cash flows from operating activities:
                
Consolidated net income
  
$
235,252
    
$
167,994
  
Adjustments to reconcile consolidated net income to net cash provided by operations:
                
Depreciation and amortization
    
76,283
      
64,104
  
Amortization of stock-based compensation
    
20,167
      
12,782
  
Equity in earnings of affiliated companies
    
(2,598
)
    
(3,343
)
Deferred income taxes
    
15,979
      
19,548
  
Restructuring, integration, and other charges
    
15,546
      
36,183
  
Excess tax benefits from stock-based compensation arrangements
    
(6,248
)
    
(6,617
)
Other
    
1,372
      
2,250
  
Change in assets and liabilities, net of effects of acquired businesses:
                
Accounts receivable
    
597,926
      
161,163
  
Inventories
    
(130,669
)
    
(59,866
)
Accounts payable
    
(410,063
)
    
(124,091
)
Accrued expenses
    
(107,937
)
    
(173,852
)
Other assets and liabilities
    
(21,538
)
    
58,258
  
Net cash provided by operating activities
    
283,472
      
154,513
  
                 
Cash flows from investing activities:
                
Cash consideration paid for acquired businesses
    
(60,224
)
    
(9,382
)
Acquisition of property, plant, and equipment
    
(62,003
)
    
(53,561
)
Other
    
-
      
(3,000
)
Net cash used for investing activities
    
(122,227
)
    
(65,943
)
                 
Cash flows from financing activities:
                
Change in short-term and other borrowings
    
(9,904
)
    
(27,739
)
Repayment of long-term bank borrowings, net
    
(120,000
)
    
(85,300
)
Net proceeds from note offering
    
-
      
591,156
  
Redemption of senior notes
    
-
      
(338,184
)
Proceeds from exercise of stock options
    
18,321
      
12,295
  
Excess tax benefits from stock-based compensation arrangements
    
6,248
      
6,617
  
Repurchases of common stock
    
(138,811
)
    
(312,310
)
Net cash used for financing activities
    
(244,146
)
    
(153,465
)
                 
Effect of exchange rate changes on cash
    
1,235
      
1,102
  
Net decrease in cash and cash equivalents
    
(81,666
)
    
(63,793
)
Cash and cash equivalents at beginning of period
    
390,602
      
409,684
  
Cash and cash equivalents at end of period
  
$
308,936
    
$
345,891
  
 
a50913739ex99_2.htm
Exhibit 99.2
 
Second-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 second 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 second 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 and June 28, 2014 and the company’s 2013 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Second-Quarter Summary
 
We again executed well on our revenue, profitability, and cash flow priorities in the second quarter and we are pleased by the returns from our strategic growth investments.  We grew our global components business for the fourth straight quarter while the demand environment matched our expectations. Software and services continued to deliver good growth for our enterprise computing solutions business, and hardware recovered from the first quarter as we anticipated. Our consolidated sales were $5.7 billion and diluted earnings per share were $1.43. Revenue and EPS came in above the midpoint of our guidance ranges. We delivered strong leverage on our sales growth as operating income and diluted earnings per share advanced 17% and 20%, respectively, year over year. Operating margins were up over last year’s second quarter in both businesses. Cash generation was, again, strong at $159 million. Return on working capital at a healthy 27%, advanced again year over year.
 
 
1
 

Global components revenue was above our midpoint expectations. The overall market remains stable with lead times and cancellation rates within normal ranges. Our sales of $3.6 billion advanced 5% year over year, highlighted by a fifth consecutive quarter of year over year growth in Europe. Book to bill remained positive at 1.04. Operating income grew 14% year over year. The global components business has increased gross margins two quarters in a row, and operating margins four quarters in a row on a year over year basis.
 
We continue to see strong growth in our software and security related businesses within enterprise computing solutions, and demand conditions for hardware improved relative to the first quarter. Sales grew 10% year over year and were flat adjusted for acquisitions. Growth in software and services was offset by decline in proprietary servers. Operating income grew 12%, and billings grew at a mid-single digit rate year over year adjusted for acquisitions.

 
2
 
 
Consolidated Overview – Second Quarter

         
P&L Highlights*
Q2 2014
Y/Y
Change
Y/Y Change
Adjusted for
Acquisitions &
Currency
Q/Q
Change
Sales
$5,677
+7%
+1%
+12%
Gross Profit Margin
13.2%
+20bps
flat
-70bps
Operating Expense/Sales
9.1%
-20bps
-40bps
-80bps
Operating Income
$229
+17%
+12%
+14%
Operating Margin
4.0%
+40bps
+40bps
+10bps
Net Income
$144
+16%
+10%
+16%
Diluted EPS
$1.43
+20%
+14%
+17%

* $ in millions, except per share data, may reflect rounding

●
Second-quarter sales were $5.7 billion
o    
Increased 7% year over year and 12% sequentially
o    
Adjusted for the impact of acquisitions and changes in foreign currencies, sales increased 1% year over year
●
Consolidated gross profit margin was 13.2%
o    
Increased 20 basis points year over year, principally due to improving profitability within the EMEA region for both global components and enterprise computing solutions
■  
Decreased 70 basis points sequentially due principally to a seasonally driven higher mix of enterprise computing solutions sales
●
Operating expenses as a percentage of sales were 9.1%
o    
Decreased 20 basis points year over year and 80 basis points sequentially
■  
On an absolute dollar basis, operating expenses increased 5% year over year
■  
Adjusted for the impact of acquisitions and changes in foreign currencies, operating expenses declined 3% year over year, and were 40 basis points lower year over year as a percentage of sales, driven by our operating leverage and efficiency initiatives
●
Operating income was $229 million
o    
Increased 17% year over year as reported, more than 2 x our sales growth
o    
Increased 12% year over year as adjusted for the impact of acquisitions and changes in foreign currencies
●
Operating income as a percentage of sales was 4.0%
o    
Increased 40 basis points year over year
 
 
3
 
 
●
Effective tax rate for the quarter was 28.1%
●
Net income was $144 million
o    
Increased $20 million year over year
●
Earnings per share were $1.45 and $1.43 on a basic and diluted basis, respectively
o    
Diluted EPS increased 20% year over year

 
4
 
 
Global Components
 
Graph 1
Sales ($ in millions)

●
Sales increased 5% year over year and 4% sequentially
●
Leading indicators, including lead times and cancellation rates, are in line with historical norms
●
Book-to-bill was 1.04
●
Gross profit dollars increased 6% year over year and were up 2% sequentially
o    
Sales growth and an improvement in European gross margin drove the improvement year over year
●
Gross margins increased 10 basis points year over year and decreased 30 basis points sequentially
●
Operating margin of 4.6%
o    
Increased 40 basis points year over year and 30 basis points as adjusted for the impact of acquisitions, primarily driven by operating leverage and our efficiency initiatives
●
Return on working capital increased 210 basis points year over year, driven by higher operating income

 
5
 
 
Americas Components Region
 
Graph 2
Sales ($ in millions)
 
●
Sales increased 2% year over year and 5% sequentially
o    
Good growth in the medical and lighting verticals year over year
o    
In line with normal seasonality on a sequential basis
●
Looking ahead to the third quarter, we expect sales in our core Americas components business to be in line with seasonality

 
6
 

Europe Components Region
 
Graph 3
Sales ($ in millions)

●
Sales increased 9% year over year and were flat sequentially
o    
Adjusted for the impact of acquisitions and changes in foreign currencies, sales increased 3% year over year and decreased 1% sequentially
o    
Good growth in the automotive vertical year over year
o    
Sequential sales in line with traditional seasonality
●
Looking ahead to the third quarter, we expect sales in our core European components business to be in line with seasonality

 
7
 

Asia Pacific Components Region
 
Graph 4
Sales ($ in millions)

●
Sales increased 5% year over year and 8% sequentially
o    
Robust growth in the transportation vertical and good growth in the wireless vertical year over year
o    
Sequential sales toward the low end of traditional seasonality
●
Looking ahead to the third quarter, we expect sales in our core Asia Pacific components business to be above the midpoint of our seasonality range

 
8
 

Global Enterprise Computing Solutions
 
Graph 5
Sales ($ in millions)
 
●
Sales increased 10% year over year and 27% sequentially
●
Gross margin was up 40 basis points year over year due to improvement in the Europe region
●
Operating margin of 4.8%
o    
Up 40 basis points year over year, driven by a greater mix of higher margin software and our efficiency efforts
o    
Operating income increased 20% year over year
●
Return on working capital continues to excel, increasing year over year

 
9
 
 
ECS America
 
Graph 6
Sales ($ in millions)

●
Sales increased 1% year over year and 34% sequentially
o    
Growth in software was offset by decline in proprietary servers
●
Looking ahead to the third quarter, we expect sales in our core Americas value-added computing solutions business to be in line with seasonality

 
10
 

ECS Europe
 
Graph 7
Sales ($ in millions)
 

●
Sales increased 32% year over year and 17% sequentially
o    
Adjusted for the impact of acquisitions and changes in foreign currencies, sales decreased 1% year over year
o    
Growth in software and services were offset by decline in proprietary servers
●
Looking ahead to the third quarter, we expect sales in our core European value-added computing solutions business to be in line with seasonality

 
11
 
 
Cash Flow and Balance Sheet Highlights
 
●
Cash Flow from Operations
Cash generated from operating activities in the second quarter was $159 million and $580 million on a trailing 12-month basis.  We converted more than 120% of GAAP net income to cash over the last 12-months, well in excess of our target.

●
Working Capital
Working capital to sales was 14.8%.  Return on working capital was 27.2%.

●
Return on Invested Capital
Return on invested capital in the second quarter was 10.5%, 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 second quarter, bringing our total cash returned to shareholders over the last six months to approximately $125 million.
 
●
Debt and Liquidity
Our balance sheet and capital structure remain very strong with conservative debt levels and a net debt to last twelve months EBITDA ratio of approximately 1.8x.  Our total liquidity is $2.7 billion when including our cash of $309 million.

   
Third-Quarter 2014 Guidance
  
Consolidated Sales
$5.25 billion to $5.65 billion
Global Components
$3.55 billion to $3.75 billion
Global ECS
$1.7 billion to $1.9 billion
   
Diluted Earnings per Share*
$1.26 to $1.38
* Third quarter guidance assumes average diluted shares outstanding of 100 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 company’s 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 June 28, 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 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 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 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 Form 10-Q for the quarterly period ended June 28, 2014, as well as the company’s 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), 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)
 
      Q2 2014       Q1 2014       Q2 2013  
Operating income, as Reported
   $ 208,269     $ 177,740     $ 155,875  
Intangible assets amortization expense
     10,870       10,947       8,869  
Restructuring, integration, and other charges
     9,632       11,614       30,224  
Operating income, as Adjusted
   $ 228,771     $ 200,301     $ 194,968  
                         
Net income attributable to shareholders, as Reported
   $ 127,884     $ 107,120     $ 89,935  
Intangible assets amortization expense
     8,867       8,907       7,029  
Restructuring, integration, and other charges
     7,526       8,020       20,688  
Settlement of tax matters
                        
Income taxes
     --       --       5,362  
Interest (net of taxes)
     --       --       939  
Net income attributable to shareholders, as Adjusted
   $ 144,277     $ 124,047     $ 123,953  
                         
Diluted EPS, as Reported
   $ 1.27     $ 1.06     $ .86  
Intangible assets amortization expense
     .09       .09       .07  
Restructuring, integration, and other charges
     .07       .08       .20  
Settlement of tax matters
                        
Income taxes
     --       --       .05  
Interest (net of taxes)
     --       --       .01  
Diluted EPS, as Adjusted
   $ 1.43     $ 1.22     $ 1.19  

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:

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).

Q1-14 Intangible Assets Amortization Expense:  During the first 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).

Q1-14 Restructuring, Integration, and Other Charges: During the first quarter of 2014, the company recorded restructuring, integration, and other charges of $11.6 million ($8.0 million net of related taxes or $.08 per share on both a basic and diluted basis).

 
16
 
 
Q2-13 Intangible Assets Amortization Expense:  During the second quarter of 2013, the company recorded intangible assets amortization expense of $8.9 million ($7.0 million net of related taxes or $.07 per share on both a basic and diluted basis).

Q2-13 Restructuring, Integration, and Other Charges: During the second quarter of 2013, the company recorded restructuring, integration, and other charges of $30.2 million ($20.7 million net of related taxes or $.20 per share on both a basic and diluted basis).

Q2-13 Settlement of tax matters: During the second quarter of 2013, the company recorded an increase in the provision for income taxes of $5.4 million ($.05 per share on both a basic and diluted basis) and interest expense (net of related taxes) of $.9 million ($.01 per share on both a basic and diluted basis) relating to the settlement of certain international tax matters.
 

17