Arrow Electronics Fourth-Quarter Earnings Exceed Expectations

Arrow Electronics, Inc. (NYSE:ARW) today reported fourth-quarter 2009 net income of $63.1 million ($.53 and $.52 per share on a basic and diluted basis, respectively) on sales of $4.20 billion, compared with a net loss of $871.9 million ($7.30 per share on both a basic and diluted basis) on sales of $4.09 billion in the fourth quarter of 2008, primarily due to a non-cash impairment charge.

The company's results for the fourth quarters of 2009 and 2008 include a number of items outlined below that impact their comparability. A complete reconciliation of these items is provided under the heading "Certain Non-GAAP Financial Information.” Excluding those items, on a non-GAAP basis, net income for the quarter ended December 31, 2009, would have been $77.5 million ($.65 and $.64 per share on a basic and diluted basis, respectively) and net income for the quarter ended December 31, 2008, would have been $72.0 million ($.60 per share on both a basic and diluted basis).

"We ended the year on a very positive note, with sales, EPS, and cash flow well above our expectations. Our results reflect the exceptional work of our employees around the globe and demonstrate our commitment to our strategic priorities despite the external economic pressures of the past year,” said Michael J. Long, chairman, president, and chief executive officer. "Although 2009 was a challenging year, we have made great strides to accelerate our sales excellence strategy, advance our industry-leading position, simplify our business processes, and strengthen our financial base. I am confident that we will leverage the momentum from the third and fourth quarters to maximize sales and profitable growth while taking advantage of opportunities in the market.”

"The fourth-quarter results demonstrate the significant leverage we have in the business, as operating income grew faster than sales on both a year-over-year and sequential basis,” said Paul J. Reilly, executive vice president and chief financial officer. "We have also seen positive trends in gross margin in our components business. This is our second consecutive quarter of sequential improvement in gross margin in our core small and medium-sized customers in North America and Asia Pacific, while Europe’s sequential increase in gross margin was well ahead of normal seasonality.”

Global components sales of $2.59 billion increased 6 percent year over year. "Strong performance in global components was driven by better-than-expected performance in all of our core geographies. North America and Europe have continued to show improving sales trends, with both regions delivering sales growth well ahead of normal seasonality. Asia Pacific continued to grow, with sales increasing more than 25 percent year over year. We have made great strides to further simplify and unify global components in all regions, and we are confident that we will outperform the market,” Mr. Long said.

Global enterprise computing solutions ("ECS”) sales of $1.61 billion decreased 2 percent year over year. "ECS sales were in line with the high end of normal seasonality, as all of our product lines showed significant double-digit sequential increases in sales, and we experienced year-over-year growth in industry-standard servers, software and services. Our diversified and expanded portfolio of product offerings and our focus on high-growth enterprise markets have allowed us to strengthen our industry-leading position during the downturn,” Mr. Long said.

The company's results for the fourth quarters of 2009 and 2008 include the items outlined below that impact their comparability:

• restructuring, integration, and other charges of $24.7 million ($14.5 million net of related taxes or $.12 per share on both a basic and diluted basis) in 2009 and $42.3 million ($36.3 million net of related taxes or $.30 per share on a both basic and diluted basis) in 2008;
• a non-cash impairment charge associated with goodwill of $1.02 billion ($905.1 million net of related taxes or $7.58 per share on both a basic and diluted basis) in 2008;
• a loss of $10.0 million ($.08 per share on both a basic and diluted basis) on the write-down of an investment in 2008; and
• a reduction of the provision for income taxes of $8.5 million ($.07 per share on both a basic and diluted basis) and an increase in interest expense of $1.0 million ($1.0 million net of related taxes or $.01 per share on both a basic and diluted basis) primarily related to the settlement of certain international income tax matters in 2008.

FULL-YEAR RESULTS

Arrow’s net income for 2009 was $123.5 million ($1.03 per share on both a basic and diluted basis) on sales of $14.68 billion, compared with a net loss of $613.7 million ($5.08 per share on both a basic and diluted basis) on sales of $16.76 billion in 2008. Cash flow from operations for the year ended December 31, 2009 was nearly $850 million.

Net income for 2009 includes restructuring, integration, and other charges of $105.5 million ($75.7 million net of related taxes or $.63 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies and a loss on prepayment of debt of $5.3 million ($3.2 million net of related taxes or $.03 per share on both a basic and diluted basis) related to the repurchase of $130.5 million principal amount of its 9.15% senior notes due 2010. Excluding these items, net income would have been $202.5 million ($1.69 and $1.68 per share on a basic and diluted basis, respectively) for 2009.

Net income for 2008 includes restructuring, integration, and other charges of $81.0 million ($61.9 million net of related taxes or $.51 per share on both a basic and diluted basis) primarily related to initiatives taken by the company to improve operating efficiencies and a charge, including legal fees, related to a preference claim from 2001. During 2008, the company recognized a non-cash impairment charge of $1.02 billion ($905.1 million net of related taxes or $7.49 per share on both a basic and diluted basis) and a loss of $10.0 million ($.08 per share on both a basic and diluted basis) on the write-down of an investment. Net income for 2008 also includes a reduction of the provision for income taxes of $8.5 million ($.07 per share on both a basic and diluted basis) and an increase in interest expense of $1.0 million ($1.0 million net of related taxes or $.01 per share on both a basic and diluted basis) primarily related to the settlement of certain international income tax matters. Excluding these items, net income would have been $355.7 million ($2.95 and $2.93 per share on a basic and diluted basis, respectively) for 2008.

GUIDANCE

"Looking ahead, we believe that total first-quarter sales will be between $3.675 and $4.275 billion, with global components sales between $2.675 and $3.075 billion and global enterprise computing solutions sales between $1.0 and $1.2 billion. Earnings per share, on a diluted basis, excluding any charges, are expected to be in the range of $.50 to $.62,” said Mr. Reilly.

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. Headquartered in Melville, N.Y., Arrow serves as a supply channel partner for over 900 suppliers and 125,000 original equipment manufacturers, contract manufacturers and commercial customers through a global network of more than 310 locations in 51 countries and territories.

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 and net income per basic and diluted share, each as adjusted for certain charges, credits and losses that the company believes impact the comparability of its results of operations. These charges, credits and losses arise out of the company’s efficiency enhancement initiatives, asset impairments, prepayment of debt, and certain legal and 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 and losses referred to above to be outside the company’s core operating results. This non-GAAP financial information is among the primary indicators management uses as a basis for evaluating the company’s financial and operating performance. In addition, the company’s Board of Directors may use this non-GAAP financial information in evaluating management performance and setting management compensation.

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

Information Relating to Forward-Looking Statements

This press release includes forward-looking statements that are subject to numerous assumptions, risks, and uncertainties, which could cause actual results or facts to differ materially from such statements for a variety of reasons, including, but not limited to: industry conditions, the company's implementation of its new enterprise resource planning system, changes in product supply, pricing and customer demand, competition, other vagaries in the global components and global ECS markets, changes in relationships with key suppliers, increased profit margin pressure, the effects of additional actions taken to become more efficient or lower costs, and the company’s ability to generate additional cash flow. Forward-looking statements are those statements which are not statements of historical fact. These forward-looking statements can be identified by forward-looking words such as "expects," "anticipates," "intends," "plans," "may," "will," "believes," "seeks," "estimates," and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any of the forward-looking statements.

(A) Prior period amounts were reclassified to conform to the current year presentation as a result of the adoption of the Accounting Standards Codification Topic 810-10-65.